Trade And Employment Nexus: A Sectoral Analysis In Pakistan

Abstract

This study aims to analyse the response of employment to trade-liberalization in the sub-sectors of Pakistan. Annual time-series data for the period from 1994 to 2023 was analysed by applying ARDL. The nature of the data is time-series that’s why stationarity of the variables was checked through ADF and PP tests. All of the variables are founded stationary at 1^st order, while Gross Domestic Investment (GDI) is stationary at level. Beside this, Bound-test is used to confirmed the existence of long-run relationship. In the first model, long-run trade elasticity of employment in each sector is estimated. Overall, trade-volume, in the long-run, negatively influence employment in all sub sectors; however, employment only in industrial sector shows negative and significant response towards trade volume. Employment in agriculture and service sector show negative but insignificant response towards changes in trade volume. In the second model, short-run trade elasticity of employment in each sector is estimated through ECM model. In the short-run trade volume shows significant impact only in agriculture and industrial sectors. Employment in agriculture sector show positive and significant response to trade, while employment in industrial sector show negative and significant response to trade changes; however, trade elasticity of employment in service sector is found insignificant. Comparatively, the response of employment in industrial sector towards changes in trade is higher than that of agriculture sector. It is suggested that trade policies can upset the domestic structure of labour-market. Trade can be used as a catalyst to boosts economic activities, but its impacts could be different, on various sectors of the economy means agriculture, industrial & service sectors, in different periods means short-run & long-run. Overall impact may be positive or negative.