Trade, Poverty and Employment: EmpiricalEvidence from Pakistan

Muhammad Tariq Majeed

Abstract

This study investigates the development effects of trade liberalization in Pakistan. The results show that the effect of trade liberalization on per capita GDP is insignificant, though the sign is positive. However its effect on employment is negative. Although trade theory predicts that trade openness is the potential source of economic growth that in turn spills over its positive effects on labor market but this study reveals jobless-openness phenomenon in Pakistan. It is also found that trade liberalization has increased income inequalities because it creates winners and losers simultaneously that results in negative welfare impact. As far as eradication of poverty is concerned, it has been found that trade accentuates, not ameliorates, and that it intensifies, not diminishes, poverty in the case of Pakistan. The role of human capital emerged as a favorable factor in enhancing per capita GDP and eradication of poverty. The conclusion of this study is that trade liberalization is not pro-development in the case of Pakistan and investment in human capital is the effective tool for development and fighting against poverty.