The Impact of Trade Openness on Pakistan's Economic Trajectory: Lessons in Stability and Growth during Financial Crises

Abstract

The primary objective of this research is to assess the influence of trade liberalization on Pakistan's economic trajectory over the period from 1980 to 2022. The study employs the Autoregressive Distributed Lag (ARDL) model to evaluate the statistical significance of specified variables. The analysis reveals a positive long-run relationship between Trade Openness and GDP Per Capita. Furthermore, the ARDL technique indicates that all model variables are statistically significant in the short run at the 5% level. In the long run, however, Trade Openness, Broad Money, Labor, and Final Consumption Expenditure retain significance, while Capital and Inflation Rate are found to be statistically insignificant at the 10% level. Based on these findings, it is recommended that policymakers focus on enhancing labor productivity and capital efficiency to stimulate growth. Additionally, measures should be adopted to provide strategic protection to high-value-added domestic industries and to encourage export-oriented production. Inflation control measures, particularly price stabilization for essential goods, are deemed pivotal for achieving sustained economic growth. Finally, effective regulation of the money supply and the efficient functioning of financial intermediaries are crucial for directing resources toward productive investments and mitigating the negative impacts of broad money on long-term growth. Successful adoption of these policy prescriptions is necessary to maximize the benefits of trade liberalization and secure sustainable economic expansion for Pakistan.