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 sluggish exports growth alongside a high level of imports, resulting in multiple balance of payments crises. This study quantifies the types of trade-restricting and trade-promoting policies while assessing the depth of these policies. Both the methodology and the results will be shared with policymakers and other stakeholders to contribute to the ongoing discourse regarding the effectiveness of policies aimed at improving Pakistan’s trade performance.
This study analyzed Pakistan’s trade policies from 2008 to 2022 using the Global Trade Alert (GTA) database, recognized for its comprehensive coverage of crisis-era trade policies. The research evaluated the nature and extent of trade-promoting and trade restricting policies in Pakistan and empirically tested their impact on the country’s export
and import performance. The findings reveal that Pakistan employs a diverse range of trade-related industrial policies. For exports, the focus is on tax incentives and tariff reductions, while import policies focus on tariffs and internal taxation. However, the study found that only certain policies significantly affect trade volumes. Import tariffs, for
instance, have a notable impact on export growth while internal taxation influences import growth. Interestingly, traditional export financing mechanisms remain largely unchanged over the study period. To improve policy effectiveness, Pakistan should prioritize less administrative measures such as tariff reductions which have shown positive results.