Pakistan’s Dependency on Imports and Regional Integration

Abstract

With growing global and regional economic integration, Pakistan, too, is actively seeking to enhance regional economic cooperation; it has entered into various regional and bilateral trade agreements that encompass trade policies ranging from import substitution to export promotion. However, the country’s imports remain concentrated in a few product categories as well as in terms of origin. Despite several regional trade agreements, Pakistan has not been able to source its imports from regional trading partners. This stems from constraints relating to trade facilitation, regulatory frameworks, and physical infrastructure. Our empirical analysis shows that, while changes in real income and import prices have a significant effect on import demand in the long run, variations in the domestic price level do not. If Pakistan is to grow at 7–8 percent per annum as envisaged in official development plans, it will continue to experience strong growth in imports to meet its rising industrial and consumer needs. Pakistan needs to develop a strategy to use regional integration schemes as a platform for enhancing trade ties in both imports and exports. This will ensure greater trade and investment links with its regional trading partners, helping to lower the transaction costs of trade and boosting economic growth.