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Should Pakistan Liberalize Trade With India Against the Backdrop of the FTA with China? A Comparative Advantage Analysis for the Manufacturing Sector

Author

Listed:
  • Naheed Memon

    (CEO, Manzil Pakistan)

  • Faiza Rehman

    (Research Associate, Manzil Pakistan)

  • Fazal Rabbi

    (Research Associate, Manzil Pakistan)

Abstract

Pakistan and India have not yet normalized trade relations and gained the full benefits of bilateral trade despite significant developments to this end since 2011. Pakistan has yet to reciprocate the most-favored-nation status granted by India. This study investigates the benefits of trade liberalization between the two countries by studying the global competitiveness of Pakistan’s industrial sector from a policy perspective. We construct a revealed comparative advantage index for manufacturing products (HS 2-digit level) for Pakistan, India, and China for the period 2003–12, and then identify the changing patterns of comparative advantage for Pakistan. We find that 18 industries should be protected upon liberalizing trade with India. These industries are termed ‘vulnerable’ as they have moved from either borderline competitiveness to becoming uncompetitive or vice versa. Additionally, the excessive concessions granted to China in its free trade agreement with Pakistan and the resistance to opening up trade with India may have resulted in inefficient trade, i.e., imports from a less competitive partner and exports to a less lucrative market. We aim to establish a direction for further research to determine the ex ante impact of trade with India on the economy via a change in the production levels of these vulnerable industries, given the impact of free trade with China and the availability of Chinese substitutes.

Suggested Citation

  • Naheed Memon & Faiza Rehman & Fazal Rabbi, 2014. "Should Pakistan Liberalize Trade With India Against the Backdrop of the FTA with China? A Comparative Advantage Analysis for the Manufacturing Sector," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(Special E), pages 327-348, September.
    • Handle: RePEc:lje:journl:v:19:y:2014:i:sp:p:327-348
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    File URL: http://lahoreschoolofeconomics.edu.pk/EconomicsJournal/Journals/Volume%2019/Issue%20SP/14%20Naheed%20Memon%20Final.pdf
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    References listed on IDEAS

    as
    1. Hanif, Muhammad N. & Jafri, Sabina K., 2006. "Financial Development and Textile Sector Competitiveness: A Case Study of Pakistan," MPRA Paper 10271, University Library of Munich, Germany.
    2. Uzma Zia, 2007. "International Competitiveness  Where Pakistan Stands?," Development Economics Working Papers 22222, East Asian Bureau of Economic Research.
    3. Uzma Zia, 2007. "International Competitiveness—Where Pakistan Stands?," PIDE-Working Papers 2007:28, Pakistan Institute of Development Economics.
    4. Sasidaran Gopalan & Ammar A. Malik & Kenneth A. Reinert, 2013. "The Imperfect Substitutes Model in South Asia," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 14(2), pages 211-230, September.
    5. Sadaf Shahab & Muhammad Tariq Mahmood, 2013. "Comparative Advantage of Leather Industry in Pakistan with Selected Asian Economies," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 133-139.
    6. Amir Mahmood, 2004. "Export Competitiveness and Comparative Advantage of Pakistan’s Non-agricultural Production Sectors: Trends and Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 541-561.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Kamal, Asmma, 2016. "Beyond Normalization of Trade Ties - A Pakistan – India Free Trade Agreement (FTA): A Stochastic Frontier Gravity Model (SFGM) Approach," MPRA Paper 87743, University Library of Munich, Germany.
    2. Munir, Kashif & Sultan, Maryam, 2016. "Export Performance with Border Sharing Countries: An Assessment of Pakistan," MPRA Paper 69535, University Library of Munich, Germany.

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    More about this item

    Keywords

    Pakistan-India trade; revealed comparative advantage; manufacturing exports; trade liberalization;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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