Trade Liberalisation and Industrial Productivity: Evidence from Manufacturing Industries in Pakistan

Gulzar Ahmed, Muhammad Khan, Tahir Mahmood and Muhammad Afzal
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Gulzar Ahmed: Ministry of Planning, Development and Reform, Government of Pakistan
Tahir Mahmood: Department of Economics, University of the Punjab, Lahore
Muhammad Afzal: MPhil Scholar, Forman Christian College University, Lahore.

The Pakistan Development Review, 2017, vol. 56, issue 4, 319-348

Abstract: This study examines the impact of trade liberalisation on the industrial productivity for a panel of twenty seven 3-digit manufacturing industries in Pakistan over the period 1980-2006. Using a variant of the Cobb-Douglas production function for industrial sector, we estimated output elasticities. The results show positive output elasticities with respect to labour, capital and raw materials for the pre-trade liberalisation period (1981 –1995) as well as post-trade liberalisation period (1996-2006). For the pre-liberalisation period, we observe positive output elasticity with respect to energy, while it turns out to be negative in the post-liberalisation period probably due to energy crisis in Pakistan. In the second stage, we calculate total factor productivity (TFP) and examine the impact of trade liberalisation on TFP for pre-and post-trade liberalisation periods. The results reveal that trade liberalisation proxied by import duty has positive but negligible impact on the TFP in the pre-as well as post-liberalisation periods. On the other hand, effective rates of protection exert large negative impact on the TFP in the post-liberalisation than the pre-liberalisation period. JEL Classifications: F14, F13, O53, L60

Keywords: Trade Liberalisation; Total Factor Productivity; Manufacturing Sector of Pakistan; Trade Liberalisation; Total Factor Productivity; Manufacturing Sector of Pakistan (search for similar items in EconPapers)
JEL-codes: F13 F14 L60 O53 (search for similar items in EconPapers)
Date: 2017
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