Export Distribution, Competitiveness and Economic Growth of Pakistan

Abstract

Diversification of exports is one of major concerns of developing countries’ trade policy. There are number of studies which suggest for diversification of export for sustainable exports growth and consequently for economic development. It is evident from various studies that export diversification is changed with the level of development. Least Developed countries have lesser diversification and their exports gradually become more diversified as their development level increased. This trend continues to a certain development level and countries specialized in selected manufacturing industries and finally at higher national income level their diversification level decreased. Pakistan is a developing country and follows the same trend of export diversification with comparatively lower speed. This thesis has analyzed the relationship between GDP and export diversification. The level of diversification is measured through various indices, but for empirical analysis the Herfindahl-Hirschman Index (HHI) is used to measure the product as well as geographical export diversification. The result shows a long run relationship between GDP and product export diversification, while the relationship with geographical export diversification shows no significant long run relationship with GDP. It is therefore concluded that the government policy of geographical export diversification, which is implemented through various trade agreement, is not giving the desired results. This phenomenon also confirmed by using the gravity model. The dummy variable on trade agreements and European Union’s unilateral preferential market access were found to be insignificant. The gravity model has shown a positive and significant relationship of exports and distance, which is contrary to gravity theory. The analysis further confirmed domestic credit, government expenditure on human capital and terms of trade as determinants of product export diversification. While variables such as openness, exchange rate, terms of trade and human capital are determinants of geographical export diversification. These results suggest for a product export diversification focused policy for Pakistan.

This thesis has also analyzed Pakistan’s competitiveness in light of the Global Competitiveness Index (GCI). This index is created by World Economic Forum, and the data are released annually. Though Pakistan’s rank in GCI is very low, but our comparative analysis confined the South Asian countries which fall in stage-1 of development. The GCI has 12 pillars on the basis of which competitiveness ranks are determined. For the countries on stage-1 developmental level 60% weights are assigned to first four pillars of the GCI. It was found that majority of the variables used for measuring the competitiveness level come from opinion surveys. Therefore various empirical studies have not shown the relationship between higher GCI rank and economic growth. The correlation coefficient between export diversification and GCI for the countries on stage-1 shows a moderate relationship. Such diverse estimation shows that the economic analysis with GCI is useless. Empirical studies have argued that the measurement through opinion survey is useless.