Import Substitution And Export Promotion- An Empirical Evidence From Pakistan
Author: Noor Ul Ain

The trading strategy of import substitution and export expansion for development and improvement has been discussed in the literature. Most of the literature favors export expansion for economic growth. According to the modern liberal view and orthodox classical economists, trade is an engine to economic growth. Pakistan’s economic policy emphasized import substitution during the early years of independence, although efforts were also made to promote exports for economic growth. In this study, we are interested to find out whether import substitution and export expansion strategies in Pakistan contribute to growth or not. First, we take six industries including manufactured goods, chemicals, mineral fuel and lubricants, crude material inedible except fuels, food, and miscellaneous to analyze which sector expand its exports and which achieve import substitution from 1995 to 2015. We find out intra sectoral shares of import substitution, domestic demand expansion, and export expansion for three sub-periods i.e. 1995-2000, 2000-2005, and 2005-2015. It is found that roughly half of the growth was due to domestic demand expansion of all six industries (from 1995 to 2015) without any major difference in the shares of domestic demand expansion between these industries. The highest shares of domestic demand expansion are observed in the chemicals. Hence we can say that domestic demand expansion is an important source of growth in these industries. After comparing shares of import substitution and export expansion we find out that there is a reduction of the relative importance of import substitution over time. While export expansion increased slightly for all six industries. The high export expansion is achieved in chemicals and miscellaneous industries. To check whether export expansion and import substitution leads to economic growth or not we used cross-sectional data and find out that during the sub-period 1995-2000, there is a significant and positive impact of import substitution and export expansion on the growth rate of domestic output. In sub-sample 2000-2015, there is the negative and insignificant impact of both on growth rate. While in 2005-2015, import substitution has a significant and positive impact on the growth rate while export expansion has a positive and insignificant impact on the growth rate. As most of the literature favors export expansion for economic growth. Hence this study also investigates the key determinants of exports that will lead to export expansion in Pakistan. From earlier methodology we will find out the industries in which export promotion strategy should be implemented for economic growth hence, this methodology may help us to expand exports in those industries. We considered all internal and external factors that are important in determining exports growth such as FDI, foreign GDP, national savings, real exchange rate, official development assistance, no of mobile phones, indirect taxes, total labor force and industry value-added. This study used the ARDL approach to co-integration to find out the long-run relationship among exports and their determinants. The study finds that during the period 1979-2019 there is a positive and significant impact of foreign direct investment and industry value added on exports of Pakistan. Indirect taxes and mobile phones have a significant and negative impact on exports of Pakistan. There is need to transform Pakistan’s export base from primary commodities to higher industry value added products. Government and policymakers should promote FDI. Government should provide incentives to attract foreign investors in export oriented industries. There is a need to transform agriculture exports with industrial exports, which then in world markets allows stable and reasonable prices. In addition, imports reliance can be decreased through industrialization by using import substitution strategy. Supervisor:- Dr. Hafsa Hina

Meta Data

Supervisor: Hafsa Hina

Related Thesis​