The Effect of Trade Liberalization on the Economy of Pakistan: A Time Series Data Analysis

Abstract

The purpose of this research was to learn how freer trade affects a country's GDP. The data was used from the period 1972 to 2021, we tested the impact of several independent indicators on the dependent variable of GDP per capita. These variables included trade openness, labor force participation rate, foreign direct investment, exchange rate, and trade openness multiplied by the exchange rate. The stationarity of the data was tested using unit roots, and cointegration analysis and relationship estimation were performed using the OLS (least square) method. The OLS analysis showed that the GDP per capita in Pakistan was positively and significantly influenced by trade openness, the labor force participation rate, FDI, and the exchange rate. A negative and statistically significant effect on Pakistan's GDP per capita was nevertheless found for the interaction term of trade openness multiplied by the exchange rate.