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ABSTRACT
In economic development and growth literature, rapport between exports and economic growth has discussed extensively. This debate centers on whether country should promote the export sector with export promotion and import substitution approach to attain sustained level of economic growth. This present endeavour examined association between exports and economic growth for the period 1973-2006. Threshold regression technique employed to investigate how Pakistan achieve benefits more from exports after accomplishment a certain level of economic development. The empirical analysis suggested that Pakistan is getting more benefits from export oriented policy while threshold approach concluded that it is necessary for Pakistan to obtain maximum benefits at certain level of growth. Export promotion strategy has positively significant impact on economic growth due to availability of cheap labour with low cost of production.
JEL Classification: O11; O50; F43.
Key Words: Export; Growth; Threshold; Pakistan.
1. INTRODUCTION
The contentious theoretical association between trade and economic growth has been discussed for over two centuries. Nineteenth century appeared with favorable arguments regarding trade by Adam Smith (1776), Ricardo (1817), Torrens (1815), James Mill (1821) and John Stuart Mill (1856). Justification not for free trade but for indisputable benefits that international specialization brings to the productivity of nations has been widely discussed in the growth literature [Bhagwati (1978) and Krueger (1978)]. The export-led growth hypothesis (ELGH) postulates that export expansion is one of the main determinants of growth. It holds that the overall growth of countries can be generated not only by increasing the amounts of labor and capital within the economy, but also by expanding exports. According to its advocates, exports can perform as an "engine of growth". In 1980s and 1990s, both developed and developing nations, increased their trade as share of GDP with other countries due to huge increase in trade associated with unparalleled waves of trade liberalization. The rapport between trade and economic growth however remains contentious. Although the benefits of free trade are authorized by conventional economics and exports are seen as an engine to stimulate the economic growth. A large body of empirical psychology regarding the impact of trade policies on economic performance has produced mixed result.
In traditional growth model, import substitution and export promotion are seen as mutually exclusive. That's why in compatible...