The Impact of Industrial Policy on Export Diversification: Some Empirical Evidences from Pakistan

Amir Azam

doi:10.47577/tssj.v5i1.149

Abstract

Export sector is considered as the backbone of any economy. The economy which is efficient and competitive in global market enjoys better export performance otherwise become dependence on foreign goods market. Pakistan being a developing economy faces worse export performance as compare to its past competitors and currently economy faces huge current account deficit. The current study made an attempt to check the relationship between Industrial Policy and export diversification using ARDL approach because of different integration nature of variables under consideration from 1980-2018. The findings of the study suggests that there is strong relationship between industrial Policy instruments and export diversification both in short run and long run and by enhancing strong and visionary Industrial Policies and less relying on imports, the economy can enjoy sufficient growth and diversify its export structure.

Highlights

Going back to 1960’s and 70’s the economy of Pakistan was considered as one of the fastest growing economy in South Asia and in global market (Siddiqui, 2018) and Khan (1998) elaborated that by viewing the history of export performance of Pakistan with other developing economies, the individual performance of Pakistan’s export was higher than the overall performance of Philippines, Turkey, Korea and Indonesia in 1960’s but soon after we unable to diversify our industrial sector both at market and goods level that bring us as lower as even we can’t export half of the lowest exporting goods of the above economies
Previous Studies The past studies show mixed up relationship between Industrial Policy and Export Diversification, most of the studies have taken the instruments of industrial policy separately rather than as instruments of Industrial Policy only few studies have discussed the instruments of industrial policy while comparing its impact on different dependent variables
The current study focused on market diversification and ARDL approach have been applied by taking two major dimensions of export diversification i.e. Diversification Index and Market Penetration

Summary

Introduction

Going back to 1960’s and 70’s the economy of Pakistan was considered as one of the fastest growing economy in South Asia and in global market (Siddiqui, 2018) and Khan (1998) elaborated that by viewing the history of export performance of Pakistan with other developing economies, the individual performance of Pakistan’s export was higher than the overall performance of Philippines, Turkey, Korea and Indonesia in 1960’s but soon after we unable to diversify our industrial sector both at market and goods level that bring us as lower as even we can’t export half of the lowest exporting goods of the above economies. The current study is taking import tariff, export subsidy, export rebate, industrial expenditures, Research and Development expenditures and Economic processing zone’s as instruments of Industrial Policy while Herfindal Index is use to show that how much our economy is open for international market and Export Diversification Index is use to elaborate the diversification performance in the economy. Data Sources The current study considered the export diversification index and concentration index as dependent variable while instruments of industrial policy i.e. import tariff, export subsidy, export rebate, industrial expenditures and r&d expenditures with a set of control variables i.e. foreign direct investment, exchange rate, GDP, Domestic Credit, Terms of Trade and gross capital formation are been taken as independent variables. The below table give a quick overview of descriptive statistics behavior of industrial policy instruments

Industrial Export

BANGLADESH PAKISTAN

MP HI MP

Export Rebate Level

Findings

Conclusion and policy recommendations