THE LINKAGE BETWEEN TRADE LIBERALIZATION AND ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM PAKISTAN

With globalization, the issue of trade liberalization and maintaining sustainable economic growth has captured worldwide attention and, therefore comes to be the principle in developing countries. This study aims to examine the impact of trade liberalization on the economic growth of Pakistan using annual time series data over a period of 1976-2022. Three trade-growth models, with three different trade proxies, are used for this purpose. ARDL-bound test and ECM are used for analyzing the long-term and short-term parameters of the models. ADF and PP tests are used for finding the unit root. Findings revealed that the impact of trade liberalization, in the first two models, was found homogeneous in terms of relationship with economic growth. However, its impact in the third model was found negative. A possible justification for this diversion was the sign of net exports, which remained negative over the sample period. Trade deficit was the main cause of sluggish economic growth in Pakistan. Along with various other policy initiatives like increasing energy supply to export-oriented sectors at competitive rates and strengthening trade relations with trading partners, out-of-the-box solutions like capitalizing on IT exports and online marketing are recommended to enhance the efficiency and earning of the export industry. Along with being competitive, it is also essential to align exports with market trends at internationally certified standards for increasing exports, curtailing trade deficits, and stimulating economic growth.