Abstract:
In this paper, we have addressed a key issue in the current debate
on economic development: the effect of trade liberalization on poverty.
We investigated the relationship between trade liberalization and poverty
levels both in the long run as well as in the short run for Pakistan. To
measure trade liberalization, we used standard indices of trade openness,
financial openness and public intervention in the country, while the
head-count ratio was used for poverty measurement, and GDP per capita
controlled for economic growth. Applying the Johansen Co-integration
Techniques and Error Correction Method, for long-run and short-run
analyses respectively, our findings suggest that trade liberalization has a
cumulative effect on poverty reduction in the long-run but not in the
short run in Pakistan. Lower poverty is associated with low taxation and
high foreign direct investment, while trade openness does not have a
significant impact on poverty reduction, particularly in the short run, in
Pakistan.
