Impact of trade liberalization on economic growth of Pakistan

Abstract

This study analyses the effect of trade liberalization on Pakistan's economic development, for this purpose the study utilizes the time series data of period 1980-2016.the study uses the GDP as dependent variable while trade openness, foreign direct investment, exchange rate, inflation and gross fixed capital formation as independent variables. ADF (Augmented DickeyFuller) test has been employed to check the stationarity of variables. The dependent variable is stationer at level while all the independent variables are stationer at 1st difference so study employed the ARDL (Auto regressive distributed lag model) econometrics techniques for estimation. The findings of the study show the significant positive impact of trade openness and gross fixed capital formation on GDP both in short run and in long run. Inflation and exchange rate are negatively related to GDP. Foreign direct investment has significant positive impact on GDP but only in short run. In long run both FDI and exchange rate are negatively associated with GDP. It is concluded and recommended by the result of our study of liberalize the trade and reduce all the restrictions to enhance economic growth of Pakistan