Should Pakistan Liberalize Trade With India Against the Backdrop of the FTA with China? A Comparative Advantage Analysis for the Manufacturing Sector

Naheed Memon (), Faiza Rehman () and Fazal Rabbi ()
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Naheed Memon: CEO, Manzil Pakistan
Faiza Rehman: Research Associate, Manzil Pakistan
Fazal Rabbi: Research Associate, Manzil Pakistan

Lahore Journal of Economics, 2014, vol. 19, issue Special Edition, 327-348

Abstract: Pakistan and India have not yet normalized trade relations and gained the full benefits of bilateral trade despite significant developments to this end since 2011. Pakistan has yet to reciprocate the most-favored-nation status granted by India. This study investigates the benefits of trade liberalization between the two countries by studying the global competitiveness of Pakistan’s industrial sector from a policy perspective. We construct a revealed comparative advantage index for manufacturing products (HS 2-digit level) for Pakistan, India, and China for the period 2003–12, and then identify the changing patterns of comparative advantage for Pakistan. We find that 18 industries should be protected upon liberalizing trade with India. These industries are termed ‘vulnerable’ as they have moved from either borderline competitiveness to becoming uncompetitive or vice versa. Additionally, the excessive concessions granted to China in its free trade agreement with Pakistan and the resistance to opening up trade with India may have resulted in inefficient trade, i.e., imports from a less competitive partner and exports to a less lucrative market. We aim to establish a direction for further research to determine the ex ante impact of trade with India on the economy via a change in the production levels of these vulnerable industries, given the impact of free trade with China and the availability of Chinese substitutes.

Keywords: Pakistan-India trade; revealed comparative advantage; manufacturing exports; trade liberalization (search for similar items in EconPapers)
JEL-codes: F10 F11 F12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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