Understanding the Nature of Pakistan’s trade policies and testing their impact on Pakistan’s trade performance

In recent years, the debate surrounding free trade versus protectionism has intensified, particularly as industrialized countries face increasing competition from emerging economies. This argument is of particular importance to Pakistan which faces slowly growing exports but a high level of imports, which in turn has resulted in multiple balance of payments crises This study quantifies the types of trade restricting and trade promoting policies and quantify the depth of these policies. Both the methodology and the results will be shared with policymakers and other stakeholders to contribute to the debate on the success or failure of policies aimed at improving Pakistan’s trade performance. This study analyzed the impact of trade policies on Pakistan’s trade performance over 2008 to 2022. We have used the Global Trade Alert (GTA) database, recognized for its comprehensive coverage of crisis-era trade policies, and evaluate the nature and extent of trade enhancing and trade restricting policies in Pakistan and then empirically test the impact of these policies on Pakistan’s export and import performance over this time period. We find that Pakistan employs diverse trade-related industrial policies, emphasizing tax incentives for exports and tariff reductions, while import policies focus on tariffs and internal taxation. However, only some policies significantly affect trade volumes, like import tariffs for export growth and internal taxation for import growth. Traditional export financing remains unchanged. To enhance effectiveness, Pakistan should prioritize less administrative policies like tariff reductions and explore new sectors for trade financing. To bolster exports, Pakistan should prioritize effective policies over traditional strategies. Focus on subsidizing credit for exporters, expanding successful programs like the State Bank of Pakistan’s TERF scheme, and reducing tariffs on imported inputs. Direct government spending towards export-focused training and infrastructure.