Export Diversification and Growth in Pakistan: An Empirical Investigation from 1972 to 2015

Abstract

This paper addresses three issues (a) it attempts to estimate whether product and geographical export diversification has contributed to GDP growth during the 1972-2015 period, (b) identify the determinants of export diversification during this period and (c) ascertain whether a structural break in the export diversification-GDP growth relationship has occurred after 2000, since when policy of liberalization has been pursued. We find a significant though modest positive association between export diversification and GDP growth during 1972-2015 and some evidence that this relationship though remaining statistically significant, however, it somewhat weakened during the liberalization period 2000-2015. We also find that private sector credit and human capital growth and favorable movements in Pakistan’s aggregate terms of trade are negatively associated with product export diversification. Export diversification is currently a policy priority; however, the government’s emphasis has been geographical – not product – export diversification. Our estimations show no positive significant relationship between geographical export diversification and GDP growth. We therefore suggest that incentives should be provided to induce Pakistani exporters to attempt to penetrate global value chain in product areas in which they already have a presence by linking their business strategies to carefully selected leading global market players.