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Regional Trade and Economic Development: Options for Pakistan

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  • Khan, Muhammad Aamir

Abstract

Pakistan shares its northern border with China, while it shares part of its northern, eastern and southern border with India: the second and seventh largest economies in the world respectively. Pakistan should therefore be ideally positioned to gain from liberalization of trade. The Pakistan-China Free Trade Agreement (FTA) signed in 2006 came with expectations of exclusive concessions and advantages towards Pakistan, but the benefits from Pakistan-China FTA are considerably less than first anticipated. Pakistan’s domestic producers suffered a huge blow as they could not compete with cheaper imports, particularly from the ASEAN economies who subsequently received more concessions from China as part of the ASEAN-China FTA. Given this new backdrop, we analyze the impact of the Pakistan-China FTA and the possibility of trade normalization with India and how agreements can improve the outcome for Pakistan. A global economic trade model is adapted to include more detailed information on Pakistan, India and China’s labor and household groups into the latest GTAP database using MyGTAP approach (Walmsley and Minor, 2013). This is the first adapted model which incorporates 3 comprehensive SAM’s in GTAP framework. These modifications allow for a more detailed analysis at the household level. The current Pakistan-China FTA shows a negative impact on Pakistan economy, however when the preferences are increased in line with the ASEAN-China FTA the overall impact on Pakistan is positive, at both the macro and micro level. Normalizing trading relations with India, through granting India NDMA status with better trade facilitation and full implementation of South-Asian Free Trade Agreement (SAFTA), shows modest positive gains on the Pakistan economy, while also raising real GDP in India, thereby offering a win-win solution for both parties.

Suggested Citation

  • Khan, Muhammad Aamir, 2017. "Regional Trade and Economic Development: Options for Pakistan," Conference papers 332899, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332899
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