SAJMS - South Asian Journal of Management Sciences

Trade Liberalization Effects on Import Demand: The Pakistan Experience Using Bilateral Trade Data

The fundamental objective of this study is to estimate for basic trade elasticity and assess the impact of trade liberalization on Pakistan's import demand in the bilateral cases for a sample of selected countries. In the sample, countries are selected from both the developed and developing world on account of their greater share in Pakistan's total imports. The method of the auto-regressive distributed lag model with a new strategy is performed using annual data for the time period of 1982-2016. Results indicate that co-integration exists in all bilateral cases. The domestic income is statistically significant determinants both in the short and long run with expected positive signs and their estimates are highly elastic. The estimates of income coefficient range from 1.54 to 7.42 which indicate that as the economy grows, Pakistan's imports from trading partners also surge with greater velocity. The price is according to the expected signs i.e. negative and insignificant in most cases, except in the case for Japan and Indonesia where it is significant but inelastic i.e. the coefficient value is looking less than 0.6 in all cases. In nutshell, the trade liberalization impact is looking positive and statistically significant in many country cases. However, these effects are different for each era of trade liberalization and vary from country to country level. This is indeed the case, where different import policies need to implement rather than a single trade policy to supervise excessive imports of the country.

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