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Purpose This paper aims to presents one of the first direct micro-econometric impact of competitive industries (based on revealed comparative advantage [RCA] between Pakistan and China) on household welfare in Pakistan using semi-parametric matching technique. Design/methodology/approach The study has also measured and identified the industrial competitiveness in both agricultural and non-agricultural (manufacturing) industries using RCA approach. RCA at the four-digit ISIC level are matched to household survey data (Pakistan Social and Living Standard Measurement) for 2013-2014 to represent the competitive industries in which the household’s higher earner is employed. Findings The findings of the study reveal that the China–Pakistan ex-post treatment effect (industrial competitiveness) provides welfare-improving effects. Furthermore, on this behalf, this study further assesses ex-ante treatment effects of recently signed China–Pakistan Economic Corridor (CPEC) on household welfare and suggests that CPEC would boost further trade liberalization and, therefore, would lead to industrial competitiveness and hence economic growth. Originality/value Paper contributes to two streams of literature. First, it measures and identifies the industrial competitiveness in both agricultural and non-agricultural industries using RCA approach; and second, it assesses the welfare of those households associated with these industries using semi-parametric propensity score matching technique.

With urbanisation1 and modernisation of the economy, the use of electrical appliances has increased manifold in Pakistan. Now, household shares in the total electricity use account for 46.5 percent. While other users have lower shares that are industrial 27.5 percent, agriculture 11.6 percent, commercial 7.5 percent and the government 6.2 percent only [Pakistan (2012-13)]. Overtime, the household electricity consumption has also increased because of the increase in electricity consumers2 and of village electrification.3 Other important reasons include the use of modern appliances including both locally made and smuggled and increase in the share of urban women in the labour force by 6.5 percent during 2007-08 and 2012- 13 [Pakistan (2012-13)]. These reasons are also responsible for enlarging electricity demand and supply gap over the years and have led to the electricity shortage to alarming proportions in March 2012. The electricity gap increased to 57,754 GW from 56,930 GW showing an increase of 1.4 percent from the corresponding period of the last year. The acute electricity shortage has caused long hours of the electricity load shedding in the country. The population living in urban areas bears the direct fall out of the electricity breakdown because of the modern lifestyle and sheer dependence on electricity [Pakistan (2012-13)].

Literature on nexus between trade openness and government spending is impressive [Atif, et al. (2012), Rudra (2004), Dani (1997) and McGuire (1999)]. The literature is growing rapidly. Analysts have documented the positive effects of government social spending [see for example Mesa-Lago (1994); Huber (1996); Weyland (1996); McGuire (1999)]. Unfortunately, Pakistan lacks empirical evidences on the impact of government social spending. Although Government of Pakistan has taken number of initiatives to have some form of redistribution policies, however, inequality in Pakistan is higher as compared to other Least Developed Countries that are open to trade. This situation is alarming. This paper therefore tries to identify the nexus between trade openness and social spending for the period 1975–2012. International evidence suggests that government social spending influences poverty and distribution of income. Pakistan‘s low level achievement in terms of reducing inequality, given the likely adverse economic impact of trade openness, point towards the fact that government has to design the policy in such a way that it affects the distribution of income. Thus, exploring the effect of social spending on income inequality is necessary for the concerned policy makers.