Evidence suggests that Pakistan has thepotential for much faster and more diversified economicgrowth. Energizing trade can help Pakistan to realize itsgrowth potential. Pakistan’s inward-oriented trade policieshave had the effect of stalling Pakistan’s integration intoregional and global value chains (GVCs). Pakistan’s failureto reform its trade policy to better foster exportcompetitiveness can be attributed in part to institutionalfragmentation within the government. This fragmentation hasresulted in different agencies sometimes working at crosspurposes. Efforts to reduce tariffs have been offset by theintroduction of alternative protection instruments such asregulatory duties (RDs) and firm-specific special regulatoryorders (SROs). In addition to tariffs, RDs and SROs, otherobstacles to global integration include a heavy regulatoryburden and perceived risks to investing and operating in thecountry, which have hurt efforts to attract foreign directinvestment (FDI). Growth and competitiveness are alsoinhibited by inefficient trade facilitation policies, weaklogistics services, and underdeveloped infrastructure. Theseconstraints have made it difficult for Pakistan to fullyexploit its proximity to China, a trade powerhouse, withwhich it has a free trade agreement. All in all, theanti-export bias of Pakistan’s trade policy has made it moredifficult for outward-looking firms to grow by accessingglobal markets. A series of actions in the areas of tradepolicy, trade facilitation and connectivity, andinstitutional coordination could potentially stimulatePakistan’s growth through increased trade and investmentcompetitiveness. Integration with other countries in theregion and neighboring regions, particularly East Asia, willallow Pakistan to diversify both its product basket andmarkets. Finally, full normalization of trade relations withIndia would allow Pakistan to benefit from India’s fastgrowth and promote complementarities, including valuechainactivities and investment potential.
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