Abstract

Pakistan grapples with a precarious undocumented fuel trade (UFT) conundrum. The Government of Pakistan has taken several measures to address the UFT conundrum. These measures, which have cost the government more than PKR 3000 million, include lighting the border, its physical fencing, and enforcing regulations on the movement of goods as well as on the people across the border. However, it has failed to solve the UFT conundrum. Based on utility, prospect theory, and trade theories, the study employs a multinomial logit model to identify critical factors influencing UFT participation as well as explores how UFT impacts provincial and national economies. The findings of this study suggest that UFT occurs due to multiple socioeconomic factors. It highlights that nearly 0.1 million individuals directly and 2 million indirectly rely on UFT, with daily cross- border fuel flows exceeding 11 million liters. The study highlights the importance of targeted interventions, including border markets, alternative employment opportunities, trade facilitation, and sustainable livelihoods, to encourage formalization and promote economic growth. It concludes that long-term strategies, incorporating education, financial inclusion, and structural reforms, are also essential for documenting UFT and improving socioeconomic outcomes in border regions.