External Determinants of Growth and Growth Projections: SAARC and Pakistan

In the global trading arena, the regional integration perhaps represents the most important legacy of the 20th century. This paper focuses on the scope and promise of economic cooperation between the SAARC region countries. Descriptive statistics is used to provide the evidence for the argument that very high share of trade in the GDP of the region’s economies exposes them to external shocks in a potentially harmful manner, and these countries ought to be paying greater attention to increasing the size of their economies. In order to determine the importance of the external sector in the economies of the region, a simultaneous equations model is formulated and estimated, utilising the pooled data for the period from 1972–2001, by applying the 2SLS technique. The coefficients of two of the three external sector variables included in the model, namely, export earnings and trade balance, turn out to be significant, providing the evidence on the importance of the external sector in the economic growth of the SAARC region countries. Keeping in view that Pakistan needs to adopt sustainable growth strategies, the authors maintain that extended economic cooperation within the SAARC region is the most viable alternative for the country. The argument is substantiated with the help of inferential statistics, providing the evidence that exports to SAARC countries are positively related with the economic growth of Pakistan. The simulation output also shows that increasing and diverting the country’s exports to the SAARC region have positive impact in terms of growth projections. By estimating and simulating another model, it is inferred that in the short run, diverting exports to both the SAARC and ASEAN region countries appears to be a viable strategy to help Pakistan move towards greater integration within the SAARC region, and that the SAARC forums must make meaningful progress in terms of delivering concrete results.