This paper traces the evolution of “discriminatory” international trading arrangements: (i) regional trade agreements (RTAs), which offer their members better access to each other’s markets; and (ii) preferential trade agreements (PTAs), which offer developing and least developed countries (LDCs) nonreciprocal access to certain markets. The number, coverage, and depth of RTAs have increased tremendously in the last 25 years, potentially leading to even deeper integration among dynamic economies. However, countries on the margin of RTA activity may be in danger of not benefitting from the growth in international trade. The number of countries offering PTAs has also increased with many developing countries now providing LDCs with nonreciprocal market access. This significant level of RTA and PTA activity raises serious challenges for countries such as Pakistan, which remain on the margins. Efforts to rectify this should, in the short term, focus on negotiating RTAs with selected countries to build the required capacity for such negotiations and improve Pakistan’s visibility on the RTA landscape. The country must aggressively seek and defend nonreciprocal market access under PTAs, with particular focus on such GSP schemes as offer additional benefits. Medium-term actions should aim to improve competitiveness by investing in infrastructure, energy, and human resources; adopting a coherent and supportive macroeconomic policy framework; and improving law and order. This will help Pakistan enter into and benefit from RTAs with dynamic economies while substantially reducing its dependence on PTAs.
KEYWORDS: Pakistan, WTO, regional trade agreements, preferential trade agreements, GSP.
JEL: F13, F40.

Recognizing that trade facilitation has contributed significantly to reducing costs and time in cross-border trade, World Trade Organization (WTO) members adopted the new Trade Facilitation Agreement (TFA) at the last ministerial conference in Bali. WTO members are now gearing up to implement the commitments ensuing from the TFA in accordance with the special and differential treatment stipulated for developing countries. This paper assesses the impact of the TFA on Pakistan’s national trade policy and shows how the process of policy formulation in Pakistan should be adjusted so that the agreement can be promptly and correctly implemented on a sustainable basis.
KEYWORDS: Pakistan, world trade organization, trade facilitation agreement (TFA).
JEL: F13, F40.

Regional trade has been an important factor in the economic success of many countries. Within most trading blocs, intra-regional trade comprises 40 percent or more of each member country’s individual trade. However, for the regional arrangements of which Pakistan is a member, intra-regional trade accounts for less than 5 percent. Pakistan’s strategic location is its greatest asset, but it has not leveraged this to its advantage. Although it was a relatively forward-looking country until the mid-1960s its policies have not been favorable to promoting trade and economic development since then. While other successful developing countries have espoused liberal trade regimes since the 1980s—resorting to protectionism only on a selective basis—Pakistan continues to rely on import substitution policies. Clearly, the country needs to revisit its regional and global trade policies.
KEYWORDS: regional trade, Central Asia, regional trade routes, ports, Gwadar.
JEL: F10, L50.

The objective of this study is to understand why parents in rural areas of Punjab, Pakistan, choose to send their children to private schools when free public schools are available. The study utilizes the Privatization in Education Research Initiative (PERI) school choice dataset compiled by the Lahore School of Economics in collaboration with the Punjab Bureau of Statistics. These data provide rich information on parents’ perception of their child’s school relative to alternative schools he or she could have attended. The findings suggest that parents’ perceptions play an important role in school choice. In particular, their perceptions of school quality and employment opportunities emerge as key determinants of private school choice. Additionally, expenditure on and access to private schooling relative to public schooling as well as the socioeconomic status of the household have a significant impact on parents’ probability of choosing a private school for their child.
KEYWORDS: School choice, public vs private, rural Punjab, Pakistan.
JEL: A19, H13, R20.

This study investigates the impact of domestic and foreign currency-valued exchange rate volatility on the export and import demand functions with reference to Pakistan’s trading partners. We use GARCH-based exchange rate volatilities and the least-squares dummy variable technique with fixed-effects estimation to measure the volatility impact on both demand functions. The study evaluates a series of exchange rates from 1970:01 to 2009:12 to compare the long-run impact of volatility with that of the short run. The results show that, when Pakistan employed the US dollar as the vehicle currency with its trading partners, volatility discouraged both imports and exports. In contrast, both the import and export demand functions remained unaffected by volatility distortions when Pakistan traded with its developing partners using bilateral exchange rates valued in domestic currency terms. In policy terms, this implies that Pakistan should opt for direct domestic currency when trading with middle- and low-income countries.
KEYWORDS: GARCH models, foreign exchange markets, volatility, panel data, fixed-effects model, international financial markets, foreign exchange policy, trade, Pakistan.
JEL: C53, F1, F31, C23, G15, F44, O24.

This study focuses on the impact of trade liberalization on firm entry and exit in Punjab’s export manufacturing sector over the decade 2001–10. As far as the province’s export industries are concerned, real exchange rate depreciation attracts new firms but also leads weaker firms to exit. A reduction in local or international tariffs, however, has no significant impact on firm entry or exit.
KEYWORDS: trade liberalization, exchange rates, firm entry, Pakistan.
JEL: F41.

This study examines the impact of analysts’ recommendations on stock prices listed on the Karachi Stock Exchange for the period 2006–12. The recommendations are extracted from the daily Morning Shout report published by Khadim Ali Shah Bukhari Securities Ltd (KASB), which provides buy and sell recommendations for different stocks. We use the market model to estimate the abnormal returns around the recommendation dates for these securities. The study also investigates whether the abnormal returns are due to price pressure or information content. We find that investors earn abnormal returns on the basis of analysts’ recommendations for these securities. The results are robust in considering only the sub-sample subsequent to 2008’s global financial crisis, and are also consistent with the information content hypothesis and price pressure hypothesis.
KEYWORDS: Analysts’ recommendations, information content, price pressure, abnormal returns, market efficiency, Pakistan.
JEL: G14, G24.

This empirical study examines the effects of terms-of-trade (TOT) volatility on inflation in Pakistan, using annual data for the period 1972 to 2012. The results show that TOT volatility has a significant negative effect on inflation in Pakistan. This result is robust to alternative equation specifications and TOT volatility measures. Output growth has a negative effect on inflation while foreign export prices have a positive effect on inflation. Both the depreciation of the nominal exchange rate and money supply increase the inflation rate. The fiscal deficit and world oil prices are also found to increase domestic inflation.
KEYWORDS: Terms of trade, inflation, Pakistan.
JEL: E31, F41.

This study investigates the empirical relationship between spot and forward exchange rate efficiency with reference to Pakistan and the efficiency of its foreign exchange market. We use monthly data from the State Bank of Pakistan and KIBOR rates for the period July 2006 to December 2013. Our results indicate that the forward exchange rate does not fully reflect all the information available. Market players may gain the benefits of volatility speculation due to market inefficiency. Pakistan’s foreign exchange market is still small compared to those of other emerging economies, implying that substantial policy work is required.
KEYWORDS: Foreign exchange markets, forward exchange rate efficiency, efficient market hypothesis, emerging economy, real effective exchange rate, Pakistan.
JEL: F31, G10, F30.

In this study, we formulate a new inflation equation to capture the potential effects of gold and stock prices on inflation in Pakistan. We aim to assess the inflation-hedging properties of gold compared to other assets such as real estate, stock exchange securities, and foreign currency holdings. Applying time-series econometric techniques (cointegration and vector error correction models) to data for 1960–2010, we find that gold is a potential determinant of inflation in Pakistan. On the other hand, it also provides a complete hedge against unexpected inflation. Real estate assets are more than a complete hedge against expected inflation, although stock exchange securities outperform gold and real estate as a hedge against unexpected inflation. Foreign currency proves to be an insignificant hedge against inflation. Given the dual nature of the relationship between gold and inflation, it is increasingly important for the government to monitor and regulate the gold market in Pakistan. Moreover, stock market investment should be encouraged by the government given that asset price inflation does not pose a critical problem for Pakistan as yet.
KEYWORDS: Gold prices, inflation hedging, assets, time series econometrics technique, Pakistan.
JEL: E31, E37, E4.