Pakistan has one of the lowest trade-to-GDP ratios globally, showing at just 30%. However, it is not all doom and gloom, and the country has much room for improvement, according to the Asian Development Bank (ADB).
Existing patterns indicate that Pakistan’s trade is currently oriented to the United States, Europe, and China. Though some of its agricultural products are sold to the Middle East, it specializes in textiles. Interestingly, it does not have a significant trading relationship with its proximate neighbors in South Asia. The report points out that the only economy for which it is a major market is its northern neighbor Afghanistan. While the vast majority of its export products fall under the textiles grouping, formal measures of export concentration suggest that Pakistan’s exports basket is relatively more diversified, especially compared with other major textile exporters like Bangladesh and Cambodia. However, its exports are less diversified than India’s.
One viable strategy Pakistan can adopt to boost its growth is to open further its economy to trade. At just 30 percent, Pakistan exhibits one of the lowest trade-to-GDP ratios in the world, even when taking its size into account, the ADB says in its report titled Pakistan’s Economy and Trade in the Age of Global Value Chains. This indicates excellent potential for improvement. Studies have affirmed numerous benefits to economic openness, including opportunities for specialization, access to broader markets, the inflow of know-how, and the formalization of the economy.
The dominance of textile products in Pakistan’s exports raises the issue of diversification — or potentially the lack of it. Concentrating too much on only a few sectors or products poses risks to an economy since shocks to the dominant sector can more easily cause an economy-wide recession. Therefore, Pakistan should look for diversification of products to stabilize its GDP.
