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Does Trade Liberalization Improve Trade Balance in Pakistan?

Author

Listed:
  • Muhammad Arshad Khan
  • Atif Ali Jaffri
  • Faisal Abbas
  • Azad Haider

Abstract

This article examines the impact of trade liberalization, that is, reduction of tariff and non-tariff barriers on trade balance, in Pakistan over the period 1982–2013. The results reveal that reduction of average effective tariff rate improves trade balance in the short run, while lowering of non-tariff barriers deteriorates trade balance in the long run as well as in the short run. The analysis also suggests that depreciation of real effective exchange rate and foreign income causes an improvement in the trade balance, whereas domestic income deteriorates it. The negative association between the reduction in non-tariff barriers and trade balance worsens sustainability of current account of the balance of payments in Pakistan.

Suggested Citation

  • Muhammad Arshad Khan & Atif Ali Jaffri & Faisal Abbas & Azad Haider, 2017. "Does Trade Liberalization Improve Trade Balance in Pakistan?," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 18(2), pages 158-183, September.
    • Handle: RePEc:sae:soueco:v:18:y:2017:i:2:p:158-183
    DOI: 10.1177/1391561417713128
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    More about this item

    Keywords

    Trade liberalization; trade balance; real effective exchange rate; bounds test of co-integration;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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