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An Empirical Investigation of the Relationship between Trade Liberalization and Poverty Reduction: A Case for Pakistan

Muhammad Shahbaz (), Masood Qazi (), Mohsin Hussain Ahmad () and Muhammad Sabihuddin Butt ()
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Mohsin Hussain Ahmad: University of Karachi, Pakistan.
Muhammad Sabihuddin Butt: University of Karachi, Pakistan.

Lahore Journal of Economics, 2007, vol. 12, issue 1, 99-118

Abstract: In this paper, we have addressed a key issue in the current debate on economic development: the effect of trade liberalization on poverty. We investigated the relationship between trade liberalization and poverty levels both in the long run as well as in the short run for Pakistan. To measure trade liberalization, we used standard indices of trade openness, financial openness and public intervention in the country, while the head-count ratio was used for poverty measurement, and GDP per capita controlled for economic growth. Applying the Johansen Co-integration Techniques and Error Correction Method, for long-run and short-run analyses respectively, our findings suggest that trade liberalization has a cumulative effect on poverty reduction in the long-run but not in the short run in Pakistan. Lower poverty is associated with low taxation and high foreign direct investment, while trade openness does not have a significant impact on poverty reduction, particularly in the short run, in Pakistan.

Keywords: Trade; Liberalization; Poverty (search for similar items in EconPapers)
JEL-codes: F10 F13 I31 (search for similar items in EconPapers)
Date: 2007
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