Abstract
The study investigates the linkage of trade liberalization and labor demand elasticities in Pakistan. The panel data are used by selecting 13 industries in Pakistan's manufacturing sector for the years 1995-1996, 2000-2001, and 2005-2006. The Pooled OLS technique is applied to get the estimates at an aggregated level and disaggregated levels. Overall findings support the positive relationship between trade liberalization and labor demand elasticity in production workers but in the case of non-production workers, the findings show the weak relationship between trade liberalization and labor demand elasticity. The study is also furnished with some policy recommendations.
Highlights
It is essential to step into international trade and earn the surplus to develop the country
Where L is total employees, W is the price of labor, R is the price of capital, M is the price of raw material, Q is total output and TRADE is trade liberalization
The study probes the effects of trade liberalization on the labor demand elasticity in thirteen industries of Pakistan’s manufacturing sector
Summary
It is essential to step into international trade and earn the surplus to develop the country. Rodrik emphasized that labor demand elasticity goes up by opening trade and it increases the output level and made the domestic market more competitive. The demand elasticity of the product market can be increased by free trade This phenomenon shows a positive impact on labor demand elasticity due to increasing trade liberalization. The study provides the impact of trade liberalization on labor demand elasticity in Pakistan. Only one study has estimated the linkage of trade liberalization and labor demand elasticity in Pakistan except for Akhter and Ali (2007) and (Yasmin, 2011) in which they examined the relationship of trade liberalization and labor demand elasticity by taking a few industries. The paper is structured as: Section 2 shows the literature review on the studies of trade liberalization and labor demand elasticity.
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