ABSTRACT

The purpose of this study is to investigate how international economic agreements specifically trade treaties and double tax treaties impact real GDP in Pakistan spanning from 1975 to 2023, through fiscal and macroeconomic channels such as tax revenue, FDI Inflow and trade openness. The purpose of such treaties is to ensure fiscal stability, promote global economic integration and ultimately leads to economic stability. First, we examine the direct impact of trade treaties and double tax treaties on macroeconomic indicators as tax revenue, FDI inflow and trade openness by  using  autoregressive  distributed  lag  (ARDL)  model.  After  that,  mediation  analysis  was utilized using ARDL estimated  coefficients and  the Sobel test was  applied to examine the indirect effects. The direct effect results shows that the trade agreements have a negative and statistically significant effect on  trade openness  and positive but insignificant effect on  tax revenue, indicating that trade agreements do not contribute significantly to TR. In contrast, DTTs have a negative and statistically significant impact on tax revenue but positive and insignificant impact on trade openness, so DTTs leads to revenue loss rather than gain. FDI Inflows, however, are positively and significantly affected by both TTs and DTTs, indicating their effectiveness in boosting investment within the country. The direct impact of economic agreements on Real gdp is negligible in long run and not influence in short term as well. The Sobel test results reveal that TTs have an insignificant indirect effect on Real gdp via trade openness and tax revenue and statistically significant impact on Real gdp through FDI inflows. Similarly, the indirect impact of DTTs on Real gdp is weakly significant through tax revenue, significantly positive through FDI inflows and insignificant through trade openness. Overall, International economic agreements do not contribute sufficiently the Real gdp directly as well indirectly. Based on these findings, the study suggests that Pakistan’s treaty framework be restructured to ensure transparency. Investments incentives should be based on post establishment performances rather than granted in advance. Treaties should be aligning with national interests, openly discussed and data should be publically accessible.