TRADE LIBERALIZATION AND TOTAL FACTOR PRODUCTIVITY GROWTH (1971-2007)

Using the framework of endogenous growth model, this paper empirically analyses the relationship between Trade Liberalization (TL) and Total Factor Productivity (TFP) growth in large scale manufacturing (LSM) sector of Pakistan during the period 1971-2007. First we measure the TFP growth using growth accounting technique. Secondly Auto Regressive Distributed Lag (ARDL) modeling approach has been applied to measure the relationship between TL and productivity growth. The estimated coefficients of openness are negative and statistically significant implies that the TL policy of the government has not yet brought about any epoch-making economic results particularly for the growth rate of TFP in LSM sector. The elimination of government intervention and restrictions has characterized all policy stances, yet liberalization alone is not sufficient to produce significant, conspicuous economic achievement. Government must also play important role in capitalizing infrastructural projects, in order to lay the foundation for a healthy competitive environment for the manufacturing sector.