Pakistan’s Experience with the Pakistan–China FTA: Lessons for CPEC

Abstract

As Pakistan enters the CPEC era, there is a sense of optimism as well as concern in the country, given the uncertain economic impact of this major collaboration between China and Pakistan. Using firm-level and trade data, we empirically test the impact of the 2006 free trade agreement (FTA) between the two countries on the productivity, size and value added of potentially affected Pakistani firms. These results have important policy implications for CPEC initiatives. We start with a difference-in-difference analysis, comparing trends in those sectors in Pakistan made more vulnerable by tariff reductions on Chinese goods relative to sectors for which the tariff did not change significantly. Next, we examine those sectors in Pakistan that were given greater access to Chinese markets through reductions in the Chinese tariff on Pakistani goods relative to sectors for which market access remained roughly the same. In the sectors made more vulnerable by reductions in Pakistani tariffs on Chinese goods, imports to Pakistan have risen, while productivity, value added and value added per worker have fallen relative to other sectors since the FTA. In the sectors for which Pakistan gained access to Chinese markets, exports and employment have risen, but productivity and value added have fallen relative to other sectors since the FTA.

Does revealed comparative advantage matter in the gravity of FTAs?

“…The study concluded that Pakistan's integration with China and ASEAN would be beneficial for enhancing the bilateral trade flows of all the members. In contrast, other studies argued that Pakistan–China FTA is more beneficial to China as compared to Pakistan (Musleh-ud-Din et al ., 2009; Chaudhry et al ., 2017; Qi and Irshad, 2015; Shaista, 2010; Ahmad, 2014). Musleh-ud-Din et al .…”

“…(2009) argue that the short-term effect of the FTA between Pakistan and China is tilted towards China. Chaudhry et al . (2017) found out that in the sector in which the tariffs are reduced by Pakistan for Chinese commodities, productivity and the value-added per worker have fallen relative to other sectors.…”

“…Musleh-ud-Din et al (2009) argue that the short-term effect of the FTA between Pakistan and China is tilted towards China. Chaudhry et al (2017) found out that in the sector in which the tariffs are reduced by Pakistan for Chinese commodities, productivity and the value-added per worker Revealed comparative advantage and FTA have fallen relative to other sectors. Qi and Irshad (2015) argued that from a Pakistan perception, FTA covering only goods trade will not be valuable to Pakistan.…”

The Impact of FTA on Trade Volume and Terms of Trade between Pakistan and China

“…Most of these studies were conducted before and during the implementation period of PCFTA (Javaid & Jahangir, 2005;Musleh et al, 2009;Naved & Sarah, 2012;Shaista, 2010). Furthermore, the recently conducted studies about PCFTA (Ahmad, 2014;Chaudhry et al, 2017;Qi & Muhammad, 2015) do not provide a comprehensive empirical analysis for Pakistan and China simultaneously. Interestingly, none of these studies analysed the aspect of asymmetry between Pakistan and China.…”

Effect of Trade Liberalization on Asymmetric Countries for Homogenous and Differentiate Product: Case of Pakistan-China Free Trade Agreement

“…This modest effect of the Pakistan-China FTA rains some concerns too. Some of the significant concerns mention in the literature are about the goods convergence, utilization, productivity, and trade deficit (Ahmad 2017;Chaudhry et al 2017;Musleh-ud et al 2009;Pakistan Business Council 2012;Qi and Muhammad 2015). Musleh-ud et al (2009) discuss the issue of the utilization of Pakistan-China FTA.…”