Abstract:
This study examines the dual role of Pakistan’s tariff policy in raising fiscal
revenue and shaping export competitiveness over the period 1981–2024. Using a Two-Stage
Least Squares (2SLS) time-series framework, it estimates how tariff changes affect imports,
exports, and government revenue. The results show that a one percent increase in tariff rates
on production-related imports reduces their inflow by about 0.28 percent, while a one
percent increase in production-related imports raises exports by about 1.26 percent.
Together, these findings indicate that tariff rationalization supports export growth
indirectly, by improving firms’ access to the imported inputs used in domestic production.
While tariff reductions encourage the import of essential inputs and strengthen export
performance, higher tariffs generate only short-term revenue gains. The findings point to a
clear trade-off: tariff elasticity of revenue is positive in the short run, whereas export
elasticity is negative and statistically significant. These results are highly relevant as the
Tariff Policy 2019–24 has concluded and a new framework for 2025–30 has just started. The
study recommends gradual tariff rationalisation, a reduction in para-tariffs, and targeted
protection for strategic industries to balance revenue considerations with long-term export
competitiveness.
