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

In an extremely important and relevant article published in the Lahore Journal of Economics, Naheed Memon, Faiza Rehman and Fazal Rabbi looked at the implications of trade liberalization with China and India. The article was titled, “Should Pakistan Liberalize Trade With India Against the Backdrop of the FTA with China? A Comparative Advantage Analysis for the Manufacturing Sector,” and in the article the authors looked at the impact of the liberalized trade regime between Pakistan and China and the proposed liberalization in trade between Pakistan and India.

The authors investigated the benefits of trade liberalization between the two countries by studying the global competitiveness of Pakistan’s industrial sector from a policy perspective. To do this, the authors looked at 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 identified the changing patterns of comparative advantage for Pakistan.

The authors found that 18 industries should be protected upon liberalizing trade with India. These industries were termed ‘vulnerable’ as they have moved from either borderline competitiveness to becoming uncompetitive or vice versa. 

Additionally, the authors find that 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.

The authors 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.

The paper is available in its entirety on the Lahore Journal of Economics website here

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posted by S A J Shirazi @ 5/19/2015 10:22:00 AM,

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