Potential Economic Gains from Gsp Plus Status for Pakistan: an Empirical Analysis
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POTENTIAL ECONOMIC GAINS FROM GSP PLUS STATUS FOR PAKISTAN: AN EMPIRICAL ANALYSIS BY MUHAMMAD SHAHZAD IQBAL Registration No: 2012-GCUF-09408 Thesis submitted in partial fulfillment of the requirements for the degree of DOCTORATE OF PHILOSOPHY IN ECONOMICS DEPARTMENT OF ECONOMICS GOVERNMENT COLLEGE UNIVERSITY FAISALABAD FAISALABAD (PAKISTAN) August 2016 i DEDICATED TO MY PARENTS WHO SACRIFICED THEIR GOLDEN AGE TO EDUCATE ME ii AUTHOR’S DECLARATION I Muhammad Shahzad Iqbal hereby state that my PhD thesis titled “Potential Economic Gains From GSP Plus Status For Pakistan: An Empirical Analysis” is my own work and has not been submitted previously by me for taking any degree from this University (Government College University Faisalabad) or anywhere else in the country/world. At any time if my statement is found to be incorrect even after my Graduate the university has the right to withdraw my PhD degree. Muhammad Shahzad Iqbal October 31, 2017 iii PLAGIARISM UNDERTAKING I solemnly declare that research work presented in the thesis titled “Potential Economic Gains From GSP Plus Status For Pakistan: An Empirical Analysis” is solely my research work with no significant contribution from any other person. Small contribution/help wherever taken has been duly acknowledged and that complete thesis has been written by me. I understand the zero tolerance policy of the HEC and University (Government College University Faisalabad) towards plagiarism. Therefore I as an Author of the above titled thesis declare that no portion of my thesis has been plagiarized and any material used as reference is properly referred/cited. I undertake that if I am found guilty of any formal plagiarism in the above titled thesis even after award of PhD degree, the University reserves the rights to withdraw/revoke my PhD degree and that HEC and the University has the right to publish my name on the HEC/University Website on which names of students are placed who submitted plagiarized thesis. Student /Author Signature:___________________________ Name:. Muhammad Shahzad Iqbal . Registration No: . 2012-GCUF-09408 . iv CERTIFICATE BY SUPERVISORY COMMITTEE We certify that the contents and form of thesis submitted by Mr. Muhammad Shahzad Iqbal, Registration No. 2012-GCUF-09408 has been found satisfactory and in accordance with the prescribed format. We recommend it to be processed for the evaluation by the External Examiner for the award of degree. Signature of Supervisor ………………………. Name: ……………………Dr. Sofia Anwar……… Designation with Stamp…professor/Chairman…. Co-Supervisor Signature ……………………….………………. Name: …….. Dr. Muhammad Aamir Khan…. Designation with Stamp Assistant Professor, COMSATS Institute of Information Technology, Islamabad …………. Member of Supervisory Committee Signature ………………….…………..…………. Name: ……Dr. Muhammad Rizwan Yaseen……. Designation with Stamp.Assistant Professor…….. Chairperson Signature with Stamp…………………………… Dean / Academic Coordinator Signature with Stamp…………………………… v TABLE OF CONTENTS AUTHOR’S DECLARATION ................................................................................................ iii PLAGIARISM UNDERTAKING ........................................................................................... iv LIST OF FIGURES ................................................................................................................. xi LIST OF TABLES .................................................................................................................. xii ACKNOWLEDGEMENT ..................................................................................................... xiv LIST OF ABBREVIATIONS ................................................................................................. xv ABSTRACT ........................................................................................................................... xix CHAPTER 1: INTRODUCTION ............................................................................................. 1 1.1 An Outline of Pakistan Economy ................................................................................. 2 1.1.1 Agriculture Sector ......................................................................................................... 3 1.1.2 Industrial Sector ............................................................................................................ 5 1.1.3 Services Sector .............................................................................................................. 7 1.1.4 Pakistan’s Trade Statistics ............................................................................................ 9 1.2 European Union (EU28) and Position of Pakistan ..................................................... 12 1.2.1 Principles and Objectives ............................................................................................ 13 1.2.2 EU’s Trade Policy: Fan of Instruments ...................................................................... 13 1.2.3 EU’s Trade Policy: Differentiation by Area ............................................................... 16 1.3 GSP plus Status and Pakistan ..................................................................................... 20 1.4 Motivation of the Study .............................................................................................. 20 1.5 Research Problem ....................................................................................................... 23 1.5.1 Objectives of the Study ............................................................................................... 24 1.6 Research Questions ..................................................................................................... 24 1.6.1 The General Questions ................................................................................................ 25 1.6.2 Specific Research Questions ....................................................................................... 25 CHAPTER 2: THEORETICAL FRAMEWORK ................................................................... 26 2.1 International Trade and Growth Theories ................................................................... 27 2.2 Brief History of Modern Trade Agreements ............................................................... 28 2.3 Preferential and Free Trade Agreements of Pakistan ................................................. 31 2.3.1 External Trade Regime of EU and Pakistan ............................................................... 33 2.3.2 The Evolution of the GSP plus Arrangements ............................................................ 35 vi 2.4 Justification for Using CGE Modeling ....................................................................... 35 2.4.1 Econometric Models vs. CGE Models........................................................................ 36 CHAPTER 3: REVIEW OF LITERATURE .......................................................................... 39 3.1 Introduction ................................................................................................................. 39 3.2 International Trade and Economic Growth................................................................. 40 3.3 Exports and Economic Growth Nexus ........................................................................ 42 3.4 Computable General Equilibrium Models and the Economy ..................................... 45 3.5 Computable General Equilibrium Models and Trade Liberalization ......................... 51 3.6 European Union (EU) and Trade Liberalization ......................................................... 56 3.7 Trade Liberalization in the GTAP Framework ........................................................... 59 3.8 History of CGE Models Applied in Pakistan .............................................................. 65 3.9 Drawbacks in Previous Studies ................................................................................... 72 3.9.1 Limited Focus on Trading Blocks and Especially the European Union ..................... 72 3.9.2 Usage of Inadequate Databases .................................................................................. 72 3.9.3 Poor Quality of Limited Number of Studies on Regional Issues................................ 73 3.9.4 Single Model Repetition to Analyze Trade Liberalization ......................................... 74 3.9.5 Contradictory Results of Some Studies on Trade liberalization ................................. 74 3.10 Proposed CGE Study in Light of Past Literature Review ........................................... 74 3.11 Summary of Literature Employed CGE Models in Pakistan ...................................... 75 CHAPTER 4: METHODOLOGICAL FRAMEWORK ......................................................... 79 4.1 Historical Background of the CGE Modelling ........................................................... 80 4.2 Defining the CGE Model ............................................................................................ 84 4.3 Multi-Country Models (GTAP Model) ....................................................................... 88 4.4 Working of GTAP 9 Database .................................................................................... 90 4.5 GTAP Standard Model: Income Expenditure Global Accounts ................................. 90 4.5.5 The Standard GTAP Model and the Accounting Relationships ................................. 91 4.5.6 Distribution of Sales to the Regional Markets