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Trade, Poverty and Employment: Empirical Evidence from Pakistan

  • Majeed, M Tariq

This study investigates the development effects of trade liberalization in Pakistan over the period 1970-2006. The empirical analysis builds on four indicators of economic development that are per capita GDP, inequality, poverty and employment. Since these indicators have simultaneity problem, the model has been estimated with General Method of Moments (GMM) econometrics technique. The results show that the effect of trade liberalization on per capita GDP is insignificant though sign is positive while its effect on employment is negative. Although trade theory predicts that trade openness is the potential source of economic growth that in turn spills over its positive effects on labor market but this study reveals jobless-openness phenomenon in Pakistan. It is also found that trade liberalization has increased income inequalities because it creates winners and losers simultaneously and the net welfare impact is negative. As far as eradication of poverty is concerned, it has been found that trade accentuates, not ameliorates, and that it intensifies, not diminishes, poverty in case of Pakistan. The role of human capital emerged as a most favorable factor in enhancing PGDP and eradication of poverty. The central message of this study is that trade liberalization is not pro development in case of Pakistan and investment in human capital is the effective tool for development and fight against poverty.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 45077.

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Date of creation: 29 Apr 2011
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Handle: RePEc:pra:mprapa:45077
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  1. Paul M. Romer, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 3-22, Winter.
  2. MacDonald, Ronald & Majeed, Muhammad Tariq, 2010. "Distributional and Poverty Consequences of Globalization: A Dynamic Comparative Analysis for Developing Countries," SIRE Discussion Papers 2010-62, Scottish Institute for Research in Economics (SIRE).
  3. L. Alan Winters & Neil McCulloch & Andrew McKay, 2004. "Trade Liberalization and Poverty: The Evidence So Far," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 72-115, March.
  4. Amina Tabassum & M. Tariq Majeed, 2008. "Economic Growth and Income Inequality Relationship: Role of Credit Market Imperfection," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(4), pages 727-743.
  5. Edwards, Sebastian, 1993. "Openness, Trade Liberalization, and Growth in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1358-93, September.
  6. Douglas A. Irwin & Marko Tervio, 2000. "Does Trade Raise Income? Evidence from the Twentieth Century," NBER Working Papers 7745, National Bureau of Economic Research, Inc.
  7. Muhammad Tariq Majeed & Eatzaz Ahmad, 2009. "An Analysis of Host Country Characteristics that Determine FDI in Developing Countries: Recent Panel Data Evidence," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 14(2), pages 71-96, Jul-Dec.
  8. Haroon Jamal, 2006. "Does Inequality Matter for Poverty Reduction? Evidence from Pakistan’s Poverty Trends," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(3), pages 439-459.
  9. Anne O. Krueger, 1983. "Trade and Employment in Developing Countries, Volume 3: Synthesis and Conclusions," NBER Books, National Bureau of Economic Research, Inc, number krue83-1, 07.
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