ABSTRACT

This study examines the importance of two approaches to development i.e. import substitution policy and export-led growth strategy. IS policy suggests the restriction on imports, while ELG strategy suggests increasing and diversifying exports. Twelve different variables from both approaches are taken for the time period of 1981 to 2022. The study aims to find the role of both policies in the development of Pakistan. The purpose of this study is to predict GDP for the next five years based on variable from long run static equations by taking IIS for each variable. It employs the theoretical ARDL model and creates a Generalized Restricted model (GUM) including the first lag of both the dependent and independent variable obtained by the ACF and PACF function of the residual of the static equation. ARDL model with auto metrics technique is used to get a restricted model of significant variables. For prediction, long-run static equation variables are projected for next five years using ARMA modelling. These prediction values of variables are combined with the coefficients of long run static equation to get GDP equation. The result shows none of the policies can be used in isolation while ignoring the other, suggesting a policy mix solution. The exports need to be value-added to contribute to development and imports of consumer goods should be restricted. GDP prediction based on industrialization, taxes less subsidies, exports, official development assistance, and tariff rate shows a positive increase till 2027 after a sudden decrease in 2023. Pakistan needs to work on its export side making more valueadded and innovative goods while not restricting the imports of raw material and intermediate goods.