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Trade Openness: New Evidence for Labor-Demand Elasticity in Pakistan's Manufacturing Sector

Author

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  • Bushra Yasmin

    (Fatima Jinnah Women University, Rawalpindi, Pakistan.)

  • Aliya H. Khan

    (Quaid-i-Azam University, Islamabad, Pakistan.)

Abstract

This study is an attempt to investigate trade–labor market linkages in Pakistan. Our main hypothesis that trade liberalization leads to an increase in labor-demand elasticity is empirically verified using a panel data approach for the period 1970/71–2000/01 for 22 selected manufacturing industries in Pakistan. We use ordinary least squares to estimate models in levels and first-differences, in addition to a fixed effects model. Overall, our findings suggest weak evidence of increased labor-demand elasticity as a result of trade liberalization in Pakistan’s manufacturing sector. Nor does the study find support for a positive labor market and trade linkage from an employment point of view—as otherwise suggested by standard trade theory. This may be due to increased capital intensity in the manufacturing sector by time, and the infusion of new technology. It could also be attributed to labor market imperfections preventing trade liberalization from favorably influencing employment conditions in Pakistan. Our policy recommendations based on the study’s results stress the need for skill enhancement measures to increase labor productivity, helping it become competitive according to the demands of globalization.

Suggested Citation

  • Bushra Yasmin & Aliya H. Khan, 2011. "Trade Openness: New Evidence for Labor-Demand Elasticity in Pakistan's Manufacturing Sector," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(2), pages 55-85, Jul-Dec.
    • Handle: RePEc:lje:journl:v:16:y:2011:i:2:p:55-85
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    References listed on IDEAS

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    2. Ben Salha, Ousama, 2013. "Does economic globalization affect the level and volatility of labor demand by skill? New insights from the Tunisian manufacturing industries," Economic Systems, Elsevier, vol. 37(4), pages 572-597.

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    More about this item

    Keywords

    Trade openness; labor-demand elasticity; Pakistan.;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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