Effects of Trade Liberalization on Economic Growth of Pakistan
Trade policy is gaining an increasing importance in developing economies as a strategy for economic development. The rapidly growing world market offers. Realizing the importance of trade policy as a tool for economic development, the government of Pakistan began to restructure its trade policy from a protectionist regime to a more liberalized regime with the introduction of wide ranging structural reforms in late 1980s. Successive trade policies attempted to diversify the export base and to improve export infrastructure and to increase exports. This research explores the impact of trade liberalization on the economic performance of trade in Pakistan for the period 1977-2008. By using multiple linear regression estimation technique the aggregate production function for Pakistani economy is estimated. The findings indicate that the trade liberalization is having positive impact on the growth of economy. One interesting finding of this research is negative but statistically significant coefficient for Foreign Direct Investment in Pakistan. Extensive privatization of state owned enterprises could be one major reason behind this negative sign. This research suggests the continuation of trade liberalization policy for long term sustainable economic growth of the country.