An Empirical Investigation of the Determinants of Protectionism: A Case of Pakistan

Abstract

Pakistan is among the most protectionist economies of the world and highly protective trade regimes thus calls for an investigation of the determinants of this protectionism.  The current study intends to examine the macroeconomic determinants of protectionism in the case of Pakistan employing the Granger Causality test and Impulse Response Function covering a time period from 1988-2018.  The results of the Granger Causality test reveal that unemployment & GDP Granger cause the tariff rate and there exists a unidirectional relationship between these two variables with the tariff rate. Contrary to this, the tariff rate is granger caused by the trade balance. Terms of the trade is found to have a bidirectional association with the tariff rate, while there is no evidence of a causal relationship between the tariff rate and inflation. The results of Impulse Response functions reveal that an increase in unemployment and a higher TOT, both are found to be positively associated with an increased level of protectionism. However, a higher level of GDP or economic growth leads to reduce the protectionism thereby reducing the tariff rate. The results of the study are quite pertinent in identifying the core factors inducing a high level of protectionism in Pakistan.