Impact of Trade Liberalization on Employment, Poverty Reduction and Economic Development

The study investigates the impact of trade liberalization on employment, its consequence to poverty reduction and how trade openness affects economic development in Pakistan. Although, increase in poverty and unemployment is observed, this study ascertains a growth in macroeconomics indicators. The Annual data of macroeconomic indicators including per capita income for industrial and agriculture sector, employed labor force, inflation and per capita GDP are used to investigate the impact of trade liberalization. Johansen Co-integration and Error Correction Method (ECM) are applied to estimate short and long run relationship among variables. Granger causality test is performed to determine causal relation between trade openness and other variables. The finding of this study reveals that in short run, there is negative relationship between trade openness and per capita income in industrial sector, employed labor force and inflation while positive association with per capita income in agricultural sector. In the long run, trade liberalization has a positive association with per capita income in agricultural and industrial sector, employed labor force and inflation and inverse relation with per capita GDP