Conflicts and The Structure of Economy: A Case of Trade in Pakistan

Abstract

Trade and investment are considered crucial elements of long-run growth which along with other factors are also affected by conflicts. This study addresses this issue by taking both internal and external conflicts and its effects on trade. The ARDL approach used for the period of 1984 to 2016. External and internal conflicts both have a statistically significant and negative effect on exports. Government stability has positive effect on exports. Therefore, macroeconomic instability has a negative and statistically significant impact on exports. The law and order and ethnic tension do not have a statistically significant impact on exports. Democratic accountability and socioeconomic conditions also have statistically significant negative and positive impacts on exports, respectively. In the import model, government stability, ethnic tension, law and order, and democratic accountability do not impact imports. External conflict is statistically significant and positive for imports. External and internal conflicts have negative effects on trade (exports and imports) in other aspect of the globe. Therefore, socioeconomic conditions also have a statistically significant negative on imports. The empirical results support the theory of conflicts in Pakistan. Based on the findings, it is suggested that the government may design policies that ensure protection of economy from conflicts and smoothen the flow of trade.