Import-Led Growth Hypothesis: A Case Study of Pakistan

Abstract

In 2017, Pakistan has imported amounted $57 billion worth of goods from world which shows significant role of import in domestic consumption. However; most of the imports are capital goods and petroleum products which increased the trade deficit and debts. . Moreover, imports are used to run the production processes in the economy. Hence, it can be said that imports are valuable to increase growth which is the objective of this study. We have investigated the import and economic growth nexus by taking data from 1985 to 2016 for Pakistan. Growth rate has been taken as dependent variable whereas; import, export FDI and inflation rate are independent variables. After finding the stationary of the time series, ARDL technique for dynamic perspective in short and long run. We have successfully tested the imports-led growth hypothesis in Pakistan. The finding of the study proves the there is more significant role of import for determining GDP growth than exports due to the largest share of raw material, intermediate manufacturing and capital goods in imports. Although more imports will results in a greater balance of payment deficits however, import of capital and intermediate goods should be encouraged and imports consumer goods should be discouraged. Moreover, tariff rate on imported goods and border tariff should also be reduced whilst and direction of trade should be more diversified and inclusive from North America to Eastern and Western Asia. Keywords : Import led growth, Export, Foreign Direct Investment, Economic Growth, ARDL DOI : 10.7176/JESD/10-8-04 Publication date : April 30 th 2019