Constructing trade openness index for Pakistan

Constructing trade openness index for Pakistan


Muhammad Zakaria


Keywords: exports, imports, trade openness


Summary: This article constructs a trade policy openness index for Pakistan using quarterly data for the period 1981/82 to 2007/08. For this purpose theoretical and empirical literature on trade orientation measures is critically reviewed. It is found that every measure of trade orientation has some pros and cons. Therefore, one measure cannot be preferred to other measures nor any measure can be altogether relegated in favour of other measures. Following Wacziarg (2001), a trade policy openness index is calculated for Pakistan. This measure is objective, continuous and free from the omitted variable bias problem. Unlike other measures of trade openness in Pakistan, this measure is based on solid theoretical grounds as it incorporates both export and import tariffs and quantitative restrictions. It is concluded that this measure has considerable potential in empirical work regarding the trade openness-growth nexus in Pakistan.



Balassa, B., Tariff Protection in Industrial Countries: An Evaluation, “Journal of Political Economy”, 73(6), pp. 573-94, 1965.

Balassa, B., Exports, Policy Choices, and Economics in Developing Countries after the 1973 Oil Shock, “Journal of Development Economics”, 18(2), pp. 23-35, 1985.

Baldwin, R., Measuring Nontariff Trade Policies, NBER Working Paper no 2978, pp. 34-39, Cambridge, Massachusetts, May 1989.

Bhagwati, J. N., Anatomy and Consequences of Exchange Control Regimes. Ballinger Press for NBER, Cambridge, MA, 1978.

Bhagwati, J. N., Export-Promoting Trade Strategy: Issues and Evidence, “The World Bank Research Observer”, 3 (1), pp. 27-57, 1988.

Corden, W. M., The Structure of a Tariff System and the Effective Protection Rate, “Journal of Political Economy”, 74(3), pp. 221-37, 1966.

Dollar, D., Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs: 1976-1985, “Economic Development and Cultural Change”, 40, pp. 523-44, 1992.

Edwards, S., Openness, Outward Orientation, Trade Liberalization and Economic Performance in Developing Countries, NBER Working Paper No. 1989(2908), Cambridge Mass, 1989.

Edwards, S., Trade Orientation, Distortions and Growth in Developing Countries, “Journal of Development Economics”, 39(1), pp. 31-57, 1992.

Edwards, S., Openness, Trade Liberalization and Growth in Developing Countries, “Journal of Economic Literature”, XXXI, pp. 1358-93, 1993.

Edwards, S., Openness, Productivity and Growth: What Do We Really Know?, “The Economic Journal”, 108, pp. 383-98, 1998.

Greenaway, D., Nam, C. H., Industrialisation and Macroeconomic Performance in Developing Countries under Alternative Trade Strategies, Kyklos, 41(3), pp. 419-35, 1988.

Greenaway, D., Morgan, W., Wright, P., Trade Liberalisation and Growth in Developing Countries, “Journal of Development Economics”, 67, pp. 229-44, 2002.

Guttmann,  S.,  Richards,  A.,  Trade  Openness:  An  Australian  Perspective,  “Research Discussion Paper” No. 2004(11), Economic Group, Reserve Bank of Australia, 2004. Harrison, A., Openness and Growth: A Time Series, Cross Country Analysis for Developing

Countries, “Journal of Development Economics”, 48 (2), pp. 419-47, 1996.

Harrison, A., Openness and Growth: A Time Series, Cross Country Analysis for Developing Countries, “Journal of Development Economics”, 48 (2), pp. 419-47, 1996.

Harrison, A., Hanson, G., Who Gains from Trade Reform? Some Remaining Puzzles, “Journal of Development Economics”, 59 (1), pp. 125-54, 1999.

Johnson, H., The Theory of Tariff Structure with Special Reference to World Trade and Development [in:] Johnson, H., Kenen, P., (eds.), Trade and Development. Geneva: Libraire Droz for the Graduate Institute of International Studies, pp. 9-29, 1965.

Krueger, A. O., Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences. Ballinger Press for NBER, Cambridge, MA, 1978.

Leamer, E., Measures of Openness [in:] Baldwin, R. (ed.), Trade Policy Issues and Empirical Analysis. University of Chicago Press, Chicago, pp.147-200, 1988.

Lee, J.-W., International Trade, Distortions, and Long-Run Economic Growth, IMF Staff Papers, 40(2), pp. 299-328, 1993.

Levine, R., Renelt, D., A Sensitivity Analysis of Cross-Country Growth Regressions, “American Economic Review”, 82 (4), pp. 942-63, 1992.

Matin, K. M., Openness and Economic Performance in Sub-Saharan Africa: Evidence from Time-Series Cross-Country Analysis, “PRE Working Paper” No. 1992 (1025), World Bank, 1992.

Melo, O., Vogt, M. G., Determinants of the Demand for Imports of Venezuela, “Journal of Development Economics”, 14, pp. 351-58, 1984.

Perraton, J., Balance of Payments Constrained Growth in Developing Countries: An Examination of Thirlwall’s Hypothesis, “International Review of Applied Economics”, 17, pp. 1-22, 2003.

Pritchett, L., Measuring Outward Orientation in Developing Countries: Can It Be Done?, “PRE Working Paper” No. 1991 (566), World Bank, 1991.

Pritchett, L., Sethi, G., Tariff Rates, Tariff Revenues and Tariff Reform: Some New Facts, “World Bank Economic Review”, 8 (1), pp. 1-16, 1994.

Rodriguez, F., Rodrik, D., Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-National Evidence, “NBER Working Paper” No. 2000 (7081), Cambridge Mass, 2000.

Rogoff, K., The Purchasing Power Parity Puzzle, “Journal of Economic Literature”, XXXIV, pp. 647-68, 1996.

Sachs, J. D., Warner, A. M., Economic Reform and the Process of Global Integration, “Brookings Papers on Economic Activity”, 1, pp. 1-118, 1995.

Santos-Paulino,  A.  U.,  Trade  Liberalisation  and  Economic  Performance:  Theory  and Evidence for Developing Countries, “The World Economy”, 28(6), pp. 783-821, 2005. Senhadji, A. S., Time-series Estimation of Structural Import Demand Equations: A Cross-Country Analysis, “IMF Staff Papers”, 45, pp. 236-68, 1998.

Senhadji, A. S., Montenegro, C., Time Series Analysis of Export Demand Equations: A Cross- country Analysis, “IMF Staff Papers”, 46, pp. 259-73, 1999.

Wacziarg, R., Measuring the Dynamic Gains from Trade, “World Bank Economic Review”, 15 (3), pp. 393-429, 2001.

Wacziarg, R., Welch, K. H., Trade Liberalization and Growth: New Evidence, “NBER Working Paper” No. 2003 (10152), Cambridge Mass, 2003.

Winters, L. A., Trade Liberalisation and Economic Performance: An Overview, “The Economic Journal”, 114(1): F4-F21, 2004.

World Bank, World Development Report, Oxford: Oxford University Press, 1987.



Download PDF

Read 1374 times Last modified on Saturday, 01 March 2014 15:54