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Pakistan’s Trade and Investment Environment: 1972 to 2010

Zobi Fatima*

Abstract Trade and investment are two important sectors for macroeconomic development. The healthy trends in these sectors ensure the refined economic development in any country. However, in case of Pakistan, the situation of both trade and investment is very dilemmatic in nature. There are numerous factors for the low economic growth of country, which needs to be point out, in order to avoid the mistakes in future economic policymaking. Additionally, the researcher believed that it is also necessary to explain the historical trends of both sectors, which is necessary to trace the causes of persistent issues related to both sectors. The study is largely based on literature review, to describe the historical trade and investments trends in Pakistan’s economy. The first section specifically deals with trade environment which has further divided into sub-sections. Those sections describe the history of trade environment since the beginning of 1970s to present, trade markets of Pakistan, and issue of trade liberalization. The second section is about the investment sector which elucidates the foreign direct investment, domestic investment. The study covers both public and private investment; and explores reasons why it remained low. The study also attempts to explain the interaction between trade and investment and their combine prospects for the macro-economic growth in Pakistan.

Keywords: Trade investment, Pakistani market, Government policy

* PhD Research Student, Area Study Center for Europe, University of Karachi.

Jhss, Vol. 3, No.2 , July to December 2012

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1. Trade Environment of Pakistan In the first half of 2000s, the World Bank considered Pakistan’s trade policy as “least restrictive” in nature (p.2), as compare to Sri Lanka. This policy has given numerous foreign companies to establish trade with Pakistan. In this regard, the exchange rate policy has especially devised to keep the stability of foreign exchange1. Similarly, according to the report of the World Bank, the previous Country Assistance Strategy of Pakistan faced crises due to high rate of inflation in 2008. However, the appointed democratic government of PPP has launched a reforming program to tackle the issues of account deficit, growth of GDP, restoration of foreign reserves, and inflation. Apart, from all these factors, the sudden rise in international fuel price has also forced government to adopt specific strategy. The report stated that in order to deal with all these problems, the basic solution is to introduce the value added tax and effective administration of taxes. Without these two measures, it is not much possible to improve the economic condition of country2. Pakistan, which is middle income country, is more sensitive to external global economic shocks, due to its trade and investment’s fragile structure. The situation becomes much more critical when import structure is of consuming in nature, instead of capitalistic. However, because of low economic growth and development the import structure is ‘consuming’ in nature, which become more vulnerable in case of global economic crises3. 1.1. Historical Trends in Pakistan’s Trade Pakistan’s trade environment has witnessed several vicissitudes over the decades. Pakistan’s government had been adopting various trade policies at different times. The import substitution industrialization has remained prominent till 1970s. Both tariff and non-tariff trade restrictions have applied to keep the local industries steady. Nevertheless, during Bhutto’s era, government changed trade policies and converted them into “outward-oriented export-led

1 Ishrat Hussain, Pakistan’s Economic Turnaround – An Untold Story.

http://www.bis.org/review/r050412g.pdf (accessed 30 November, 2012). 2 The World Bank, Pakistan: Country Partnership Strategy FY 2010-2013 (Pakistan: The

World Bank, 2010), p.i. 3 Vaqar Ahmed & CathalO’ Donoghue, 2010.“External Shocks in a Small Open Economy: A

CGE – Microsimulation Analysis,” The Lahore Journal of Economics, 15(1), pp.45-90.


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development strategy”4 (p. 228). In this particular strategy trade liberalization has more emphasized, restrictions on tariff have relaxed and policies of trade licensing also reviewed. Consequently, it led to more foreign direct investment in country. Before 1970, Pakistan had had “free market economy” (p. 187) which converted into socialist economy during 1970s 5 . Major industries and institutions of country got nationalized, government has established its control on domestic market, and trade policies explicitly came under the government domain. These measures of government along with constant intervention and lack of proper management put drastic impacts on national economy, especially on private sector investment. The dearth of funding has reduced national growth to lowest ebb and government ended up in asking foreign loans from World Bank and IMF6. The situation has improved since 1980s due to beginning of trade liberalization. Regionalization has been bringing in main focus for trade reforms which has huge potential to provide more trade liberalization for Pakistan7. During 1997 and 1998, Pakistan adopted radical trade liberalization policy which eased the tariff for imports. During 1996 to 2003, tariff barriers on imports were reduced to 17.3% from 42% and this trend has remained continued till 2006. Similarly, the government had reduced the tariff by 25% during 2002 and 2003. It has seen that import trends has remained more active as compare to export, the major reason behind this phenomenon is that Pakistan’s export are highly dependent on the import, especially in case of textile machinery8. As the textile machinery comes in, there are more probable chances of textile export.

4 Faiz M Shaikh, 2009.“Analysis of Bilateral Trade Liberalization and South Asian Free

Trade Agreement (SAFTA) on Pakistan’s Economy by Using CGE Model.”Journal of International Trade Law and Policy.8(3), pp.320-335.

5 M. Ghaffar Chaudhry, 1995. “Economic Liberalization of Pakistan’s Economy: Trends and Repercussions.” Contemporary South Asia.4(2), pp.187-192.

6 Ibid, p.187. 7 Op.cit., “Analysis of Bilateral Trade Liberalization and South Asian Free Trade Agreement

(SAFTA) on Pakistan’s Economy by Using CGE Model.”p.228 8 Guitard Philippe, Shahid Ahmed Khan &Derk Bienen, New Business Opportunities for EU

Companies in Pakistan, (Luxembourg: European Commission Asia-Invest Programme, Europ Aid Co-operation Office, 2005), pp.30-34.


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Source: Pakistan: Federal Bureau of Statistics9 Nonetheless, in the budget of 2007 those tariffs were again increased to 30-35%10. In contemporary situation the national trade has hurried by substitution, lessening, and liberalization of “import substitution policies, trade barriers and non tariff barriers” (p. 522) respectively11. It has been believed that trade liberalization causes extensive economic growth. It played significant role during last decade, in which export (as part of GDP) and per capita income enlarged slowly and gradually12. On the other hand, it is not necessary that trade liberalization always generate positive impacts. In context of disadvantages of trade liberalization, it has been seen that liberalization causes the rise in trade deficit of country. The reason is that low prices on import commodities yields inflation in domestic economic environment13.

9 Ibid. 10 G. Pursell., “Trade Policies in South Asia,” in Routledge Handbook of South Asian

Economics, ed. RaghbendraJha (New York: Routledge, 2011), pp.218-287. 11 Abdul Hamid Khan, Mohibullah Khan & Muhammad Tahir Khan, 2012.“The impact of

trade liberalization on economic growth in Pakistan.”Interdisciplinary Journal of Contemporary Research in Business.3(9), pp.700-711.

12 Ibid. 13 Op.cit., “External Shocks in a Small Open Economy: A CGE – Microsimulation

Analysis.”p.45


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1.2. Trade Markets of Pakistan USA is one of the closest and largest partners of Pakistan, in terms of trade. In this regard, it has found that within the paradigm of Trade and Investment Framework Agreement and Preferential Trade Agreement; Pakistan discussed and demanded the special market access of its certain products14. In addition, during early years of 2000s, the Government of Pakistan has taken considerable steps and introduced reforms in trade regime. These measures have helped the country to grab large market share in international market of trade. Similarly, during this period, the exports have reached up to the level of US $9 billion and US $11 billion, during the years of 2000 to 2001, and 2001 to 2002, respectively, in spite of critical environment and non-favorable policies around the business sector 15 . USA and European Union are the two main markets of Pakistan’s export. They constitute more than 50% share of Pakistan’s exports, and rest export goes to Hong Kong, Japan, and the region of Middle East16. In EU countries, the role of UK is very important for Pakistan’s trade, because it comprised the largest share in both import and export, from rest of the global markets. UK is one of the strategic partners of Pakistan, in terms of trade and investment and played wide role as development partner of the country as well17.

Source: Pakistan: Federal Bureau of Statistics18

14 W. Y. Tsang& K. F. Au, 2008.“Textile and clothing exports of selected South and Southeast

Asian Countries: a challenge to NAFTA trading.” Journal of Fashion Marketing and Management.12(4), pp.565-578.

15 Op.cit. New Business Opportunities for EU Companies in Pakistan.p.21. 16 Ibid. 17 The Nation, “Pakistan Attaches Great Importance to its Relations with UK: President,”

http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/islamabad/10-Oct-2012/pakistan-attaches-great-importance-to-its-relations-with-uk-president (accessed November, 2012).

18 Op.cit. New Business Opportunities for EU Companies in Pakistan.p.23.

http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/islamabad/10-Oct-2012/pakistan-attaches-great-importance-to-its-relations-with-uk-president




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1.3. Trade Liberalization and Types In case of unilateral, regional and unilateral-regional trade liberalization of Pakistan, Faiz M. Shaikh (2009) performed three experiments, by using CGE model and simulation method. The purpose of those experiments was to evaluate the relationship between trade liberalization of Pakistan with South Asian Free Trade Agreement (SAFTA) and to judge the prospects of trade in Pakistan. The first experiment was related to unilateral trade in which uniform import tariff was assumed by 15% to rest of the world. The results revealed that if Pakistan would apply 15% uniform import tariff than GDP will increase by 1.53% approximately US$20,201 million. Under this result, import will increase by 3.3% and export will fall by 0.3%19. The second experiment was related to regional trade liberalization and to find out the impacts of SAFTA, in terms of Pakistan. In this experiment, he assumed that Pakistan and countries included in SAARC will diminish the tariff duties for each other, but maintain it for the rest of the world. According to the results, when countries will remove the trade barriers for each other, consequently, the regional trade will prosper and grow. The GDP of Pakistan earns 1.92% from SAFTA, therefore, the 4 percent of trade will improve but no such improvement will come on GDP, generally20. The third experiment of Shaikh (2009) was the combination of earlier two experiments. In this experiment, Pakistan is supposed to apply both conditions simultaneously. Its results stated that under this situation Pakistan will produce highest welfare gain, the GDP will increase by 3.35% and both producer and consumer will get benefits21. Through this discussion, the researcher evaluated that if Pakistan will apply these conditions of Faiz M. Shaikh (2009) in which the import tariff is reduced to 15% and all the SAARC countries remove trade barriers for each other. There is a huge chance of trade improvement of country along with considerable growth of GDP. As Pakistan mostly suffers from lack of trade and investment, and there are numerous reasons for this deficiency. One of the reasons of this lacking is that countries of South Asia, like Pakistan does not consider trade as engine for growth and hence, there is lack of policy making in this significant domain of country. It not only reflects the

19 Op.cit. “Analysis of Bilateral Trade Liberalization and South Asian Free Trade Agreement

(SAFTA) on Pakistan’s Economy by Using CGE Model.” p.239-242. 20 Ibid. 21 Ibid.


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“inward-looking” nature of country but also block the any prospect for growth and development (p.142)22. By explaining the prospects of trade environment, it has been believed that Pakistan should maintain a Free Trade Agreement with SAFTA countries, because it will bring the huge market of SAARC countries on its threshold. Producer will experience the huge competition and large market share; on the other hand, consumer will have wide choice of products on lower prices23. Similarly, it has been also found that trade liberalization need strategic policy support to work effectively. According to the views of Shahid Kardar, import-duty should not remove on every object entering Pakistan’s market. Only those imports should be duty free, which are related to “life-saving”, security and charity. Otherwise, there are chances of severe trade environment for Pakistan, in which exports will more likely to suffer24. 2. Investment Environment of Pakistan Throughout the history, the political upheavals in Pakistan have remained major source for its economic mal-functioning. The diverse policies of different governments of Pakistan caused sluggish economic growth. In 1970s, the industrial and manufacturing sector has suddenly nationalized on wide basis. However, in 1980s, when it has realized that public sector is not performing well, then the process of nationalization has reversed, and government started privatization once again25. In 2008, the Asian Development Bank considered Privatization Act 2000, as mile stone for Pakistan’s private sector. According to Federal Bureau of Statistics Pakistan, after this Act manufacturing industry has contributed 19% and 18.5% of GDP growth in 2006 and 2010 respectively26.

22 Jim Love. & Ramesh Chandra, 2005.“Testing Export-Led Growth in South Asia.”Journal of

Economic Studies.32(2), pp.132-145. 23 Op.cit. “Analysis of Bilateral Trade Liberalization and South Asian Free Trade Agreement

(SAFTA) on Pakistan’s Economy by Using CGE Model.”p.245 24 Shahid Kardar, July 26, 2012. Customs Duties’

Structure.http://www.thenews.com.pk/Todays-News-9-122878-Customs-duties-structure (accessed November 30, 2012).

25 Sheikh Zahoor Sarwar, et al. 2012.“Identifying Productivity Blemishes in Pakistan Automotive Industry: A Case Study.”International Journal of Productivity and Performance Management.61(2),pp.173-193.

26 Ibid.

http://www.thenews.com.pk/Todays-News-9-122878-Customs-duties-structure

http://www.thenews.com.pk/Todays-News-9-122878-Customs-duties-structure


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2.1. Foreign Direct Investment Foreign direct investment considered as a source which push-up the economic transformation of any country. It has further explained that there are advantages and disadvantages of FDI in any recipient country. In case of advantages, FDI has capacity to widen the opportunities for capital stock, and rising of employment scope. It also helps to enhance the technological development of recipient country, by introducing the host country’s own technological equipments and training to local officials. FDI also provides skills to labors, which not only benefits the subsidiary branch of mother firm in host country, but in long run, also facilitates the labor by increasing job opportunities for him/her. Additionally, FDI introduces new management techniques in host country, which increase the productivity of enterprises but also provide specific exemplary paradigm to local firms27. Apart from benefits, generated by multinationals and FDI in host country, there are further identified harms yielded bythem in local environment of host country. FDI put drastic impacts on the economic growth of host country, which become dependent of investments provided by mother country. In this context, the mother country flourish and keep the departments of policy making in its own hand, and in contrary, the host country remained to perform the duties of labor. The host countries also compromise their natural resources to multinationals, under the jurisdiction of several trade agreements, which brutally exploits by mother country, without consideration of environmental pollution or harm to local inhabitants. All these factors automatically lead to economic inequality between both segments of FDI28. With respect to foreign direct investment, it has been asserted that most of the times, Pakistan has been remained dependent of foreign inflows for the growth of its technological and financial development, and the extent of its economic problems have exacerbated during 1990s, which is still continued in the form of slow growth of economy. They also mentioned that the growth of cycle is not persistent in nature. Although, throughout the decades numerous opportunities came for economic growth, however, they remained unobserved due to different economic and political

27 Palamalai Srinivasan, M. Kalaivani & P. Ibrahim, 2011.“An Empirical Investigation of

Foreign Direct Investment and Economic Growth in SAARC Nations.”Journal of Asia Business Studies.5(2),pp.232-248.

28 Ibid.


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reasons29. In terms of Pakistan, they further concluded that FDI put impacts on different sectors of the country, such as, economic growth, human resources, and openness of trade, size of government and population, consumer price index30. If each factor is seen individually, than the impact of FDI seems very gloomy, however, the collective analysis shows the improvement. There are other factors too, which contribute to enhance the relationship between FDI and growth. One of them is the capability of host country, to extract out the maximum benefits from FDI. Because, they are mainly dependent on the labor power of host country, and by taking the advantage of this factor the host country may turn the situation in its own favor. Nevertheless, this aspect is also very tragic in context of Pakistan, and different scholars and researchers believed that it is mainly because of low investment on human capital, education, and training of main workforce of country. Due to all these discrepancies, the local enterprises are not capable to take maximum advantage from FDI, their trade patterns and from the reforms introduced by government in key financial institutions31. In 2001, the rate of foreign investment has remained very low. It only comprised less than average investment, which came in last five years of 1990s. During the years of 2002 and 2003, US $800 million poured in Pakistan, which was very big achievement unlike of 2001 and 2002, when only US $484 million investment entered in country. From the EU, the total investment was US $229 million, from which UK had the largest share of US $219.4 million32. This notion got also strengthen by the fact that Pakistan’s government has facilitated the FDI through its liberal policy, in which foreign companies have been provided the fully ownership of retail market. In spite of this facility and large consuming market, Pakistan was not much favored for retail investment33. Retail investments in Pakistan considered as latest improvement in country’s economic environment which started in second half of previous decade. In this context, Makro and Metro as best model of

29 Khalid Zaman, Iqtidar Ali Shah, Muhammad Mushtaq Khan, & Mehboob Ahmad, 2012.

“Macroeconomic Factors Determining FDI Impact on Pakistan’s Growth.” South Asian Journal of Global Business Research.1(1),pp.79-95.

30 Ibid. 31 Ibid. 32 Op.cit. New Business Opportunities for EU Companies in Pakistan.p.30. 33 A. T. Kearney, Emerging Market Priorities for Global Retailers. AT Kearney 2005 Global

Retail Development Index, (Chicago, IL: AT Kearney, 2005) p.4.


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retail investment of cash and carry, which entered in market during last months of 2006 and mid of 2007, respectively 34 . The establishment of both wholesalers occurred in the way that Makro signed a joint venture with House of Habib and SHV of the Netherlands, and entered in the Pakistan’s market by the name of Makro Habib Pakistan Ltd. On the other hands, Metro did not collaborate with local retail giants. Both retailers have provided the permit to establish their stores on the area of 8000 to 11,000 square meters, per outlet. Makro has set target of opening 30 stores all over the Pakistan, however, Metro decided to grab the market of Punjab province with 20 stores all over it35. Generally, it has been seen that government has welcomed the arrival of both retailers and provided them access to the market, but to the date, both only focused on large and developed cities of Pakistan. In spite of government’s support, both retailers faced the huge resistance from the local population, due to large land area allocated to them for opening of stores. Nevertheless, they were themselves reluctant to open their business at suburbs or outskirts of cities36. In the contrary, the 2010 World Bank has also reported the drastic economic situation of Pakistan, with regards to foreign direct investment. During the years of 2009 and 2010, the financial inflows of foreign investment and debt have suddenly reduced, mainly because of instability in macroeconomic structure of country, security issues, and overall global inflation. Similarly, the trends in capital inflowing also reached to lowest ebb. Earlier, during the years of 2008 and 2009, FDI has reduced to US$1.3 billion from US$2.8 billion, through the inverse trends in overall investment by foreign countries. However, with the help of IMF support, the State Bank of Pakistan managed to recover US $11 billion by March of year 201037. 2.2. Domestic Investment About the local investment in Pakistan, there is a lack of chain stores, but, supermarkets are new type of local investment emerging in the country. These are independent stores, very much advanced and organized but do not contain their chains either within the city or other cities of province. These types of supermarkets generate $275

34 Asad Aman& Gillian Hopkinson, 2010.“The Changing Structure of Distribution Channels

in Pakistan.”International Journal of Retail & Distribution Management, 38(5),pp.341-359.

35 Ibid. 36 Ibid. 37 Op.cit. Pakistan: Country Partnership Strategy FY 2010-2013.p.5.


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million of revenue and covers 10% of market. They further explained that traditional market of Pakistan which consists on small-independent general stores comprised 60% of food retail market and earn $500 million on annual basis38. 2.2.1. Government Investment As researcher focused on the period from 1972 to till now, therefore, the discussion of investment has confined to under this time frame. Hence, it is evident that during 1970s, Pakistan’s economic policy has taken sudden U-turn and nationalization of institutions occurred. This policy also brought drastic impacts on investment scenario of Pakistan. In 1973, government shared 43% of investment from total national investment which reached to 63% in 1976. This trend has decline in 1980s and fell to 55% of total national investment. Under this context, government’s investment in total growth of economy also declined. During the period of 1980 to 1987, total growth investment was 6.25%, from which government shared only 2.86%39. During mid 1970s, government extensively invested on manufacturing enterprises likes “Indus Basin, Electricity and Gas, Agriculture” (p.522), about 33.44% which has remained average investment of 3% during four years of 1988 to 1992. In case of manufacturing industry, government invested more than 75% during 1970s, which declined by 13.01% in 1980s. In energy sector, government investment was 8.71% during 1970s, which increased to 14% from late 1980s to early 1990s40. However, during 1970s, there was least investment on GDP about 17%, while, 10.3% went to public investment and 5.6% of investment has poured on private sector of the country41. In contrast, private investment has much better progress, which has remained more stable as compare to public investment, which reached to 50% in 1992. Although, it’s progress was very gloomy in 1970s, around 2%, but increased to 10.94% by 199242.

38 Asif Farrukh, Pakistan Retail Food Sector Resport 2000 (Islamabad: USDA, 2000), p.2 39 Robert E. Looney, 1999. “Government Investment in Manufacturing: Stimulus or

Hindrance to Pakistan’s Private Sector?” International Journal of Social Economics.26(4), pp.521-436

40 Ibid. 41 Op.cit. “External Shocks in a Small Open Economy: A CGE – Microsimulation Analysis.”

p.53 42 Op.cit.“Government Investment in Manufacturing: Stimulus or Hindrance to Pakistan’s

Private Sector?”p.525


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2.2.2. Private Investment The investment trend during 1980s saw the restoration in the investment of private sector and open market. The GDP growth reached up to 6.5%, in which agriculture and manufacturing industries contributed to 5.45 and 8.2%, respectively. This phase also witnessed the higher fiscal deficit of 9% unlike to 7% during 1970s. It was mainly because of increase in import and reduction in export, which constituted 18.7% and 9.8%, respectively43. Both subsequent governments of 1990s favored open economy and promoted trade liberalization, deregulation and privatization. It led to overall national investment of 18.3% of GDP. Similarly, the investment trends of 2000s followed the tradition of 1980s, and contributed 18.6% of total investment in GDP growth44. 2.3. Causes of Lack in Investment There are some of the causes of deficiency of investment in the way that those entities which never came across with bidding remained unsold. Bankruptcy was major reason of it. Therefore, it is responsibility of Privatization Commission that to recognize those companies which can be restructured once again. Similarly, government has also responsibility to expand the process of privatization not only in industrial but also in infrastructure and in field of services45. Pakistan-Britain Advisory Group gave its opinion on the investment environment of the Pakistan that though numerous well know international enterprises have invested in the country but new multinationals avoid to come here due to lowered-level of policy making in investment. The pattern of investment policy is adhered to political elites, like minister and cabinet, hence, it also becomes source of slow processes in investment process. The implementation of any policy is very slow in Pakistan; therefore, Advisory Group suggested that there should be creation of an Implementation Cell within the Presidency, which ensures the execution of every policy, especially related to investments46.

43 Op.cit. “External Shocks in a Small Open Economy: A CGE – Microsimulation Analysis.”

pp.53-54 44 Ibid. 45 Op.cit.“Government Investment in Manufacturing: Stimulus or Hindrance to Pakistan’s

Private Sector?”p.536 46 Op.cit. New Business Opportunities for EU Companies in Pakistan.pp.34-35


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In the similar context, Shahid Javed Burki has opined his views that in order to enhance the investment environment of Pakistan, crucial steps are necessary to be taken. First, the transparent tax administration should widely apply to all economic sectors. Second, the accountability of economic system in Pakistan must be reformed and provided by certain autonomy and protection. Last but not least, the area of civil services needs innovation and reforms. These three areas may collectively boost the investment and economic environment of Pakistan47. 3. Trade-Investment Relationship The countries’ economic life, trade and investment and healthy economic relations with other countries have deep cause and effect relationship. The trade policies have dire impact on domestic and foreign investment. The trade policies influence local and international investment and have huge role to design development schemes. It is a major factor to highlight country’s resources and market opportunities, which in return may cause large investment. Therefore, in today’s world, investment is directly proportional to trade48 . In term of liberalization free trade may hamper the investment in market and in order to generate enhanced system there is a need to wisely accommodate trade and investment with each other49. In context of trade and investment, the 2010 report of World Bank has mentioned three important aspects of Pakistan. It stated that Pakistan has strategic location and due to its huge population, it has wide tendency of being large market for trade and investment. Second, most of the population in country is young in age, which may help a lot to boost up the economic growth of country. Due to the fluctuation in economic growth and stagnation, there is wide imbalance in macroeconomic growth having low circulation of revenue and public savings50.

47 Shahid Javed Burki, September 2, 2012. Moving Out of the Slump.

http://tribune.com.pk/story/430200/moving-out-of-the-slump/ (accessed November 30, 2012)

48 Jonathan Gage & SébastienMiroudot, “Trade policy.” in Policy framework for investment: a review of good practices, ed. OECD (Paris: OECD Publishing, 2006), pp.53-88.

49 Brian Wilson, “A strategic overview of the debate and the key issues for the future”, in Trade, Investment and Environment, ed. Halina Ward & Duncan Brack (London: Royal Institute of International Affairs, 2000), pp.3-36.

50 Op.cit. Pakistan: Country Partnership Strategy FY 2010-2013.” P.1.


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For economic growth, it is necessary that both public and private sector performs parallel to each other. Government plays an influential role in policy’s design and decisions and should consider them as backbone for growth in industrial sector51. This notion on role of government in economic growth can be divided into two perspectives. According to first viewpoint Washington Consensus, the exhaustive role of public sector puts negative impact on private industries and manufacturing and reduces their growth. While, according to second perspective Development State View, the importance of private sector cannot be denied. But, in order to avoid any discrepancy, the role of government should remain high, as compare to private sector. Therefore, it is also necessary that government should control economic growth to some extent and also play efficient part to keep eye on private sector52. In similar context, the factor of globalization played an effective role on increased investment around the world. The companies separate some of the activities in their “value chain” and transfer them to other parts of the world as an investment. These activities include manufacturing of end product, research & development, IT, “marketing, human resources, procurement, accounting and finance, and legal support” (p. 50)53. With respect to globalization, the rise of overseas investment has occurred by today’s efficient communication and transference facilities. This phenomenon somehow comes under the boundary of famous IPLC theory which commonly known as International Product Life Cycle theory of trade and investment54. Latest products are first utilized by wealthy countries and then they directed to non-wealthy countries. However, developing countries play major role in final production of those goods (through the phenomenon of investment) and this process is further fastened by enhanced communication around globe55.

51 Zutchi R. K.& P. T. Gibbons, 1998.“The Internationalization Process of Singapore

Government-Linked Companies: A Contextual View.”Asia Pacific Journal of Management.15(2),pp.457-510.

52 Renuka Mahadevan, New currents in productivity analysis: where to now? (Tokyo: Asian Productivity Organization, 2002), passim.

53 Zahir A. Quraeshi & Mushtaq Luqmani, 2011.“A Framework for Building Competitive Sectoral Capabilities in Developing Countries.”Competitiveness Review: An International Business Journal incorporating Journal of Global Competitiveness. 21(1), pp.47-65.

54 Thomas L. Friedman The world is flat: a brief history of twenty-first century. (New York: Thorndike Press, 2005), passim.

55 Op.cit. “A Framework for Building Competitive Sectoral Capabilities in Developing Countries.” p.50.


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In the light of above discussion, it has proved that trade and investment are most important factions of economic growth and development. According to scholars, Pakistan’s survival is not based on threat from India or USA; rather it is the economic environment which might put drastic impact on country’s survival56. 4. Conclusion By reviewing the most of the relevant details regarding trade and investment environment of Pakistan, the researcher concluded that there is a need of rigorous policy making regarding both sectors. In Pakistan, it has been seen that economic development is widely dependent on political trends, throughout the previous decades. This phenomenon became major source of slow and hampered economic growth and did not let the trade and invest sectors to flourish in the way, as they were supposed to. In this context, first, there is need to separate the political and economic trends from each other. Second, government should design the certain and specific policy structure of trade and investment growth on the decade span, so that both sectors could acquire the maximum time and space to flourish. Third, there is severe need to invest on education and technological development of country, to generate the skillful human capital. This strategy would also hamper the process of brain drain and save the capable human resource for country’s own development in trade and investment sector. Fourth, in spite of providing access to multinationals in investment and trade liberalization for import, government also need to develop the market for local investors. It will automatically lead to the generation of entrepreneurship and through these strategy harms of multinationals could also be minimize by generating the competition from local firms. According to the researcher, in contemporary scenario there is severe need to put attention on the sectors of trade and investment in Pakistan. The reason is factor of Pakistan’s population cannot be avoided. As more than 50% of population is youth, therefore, government is supposed to generate employment for them and also provide them access to fine education and skill full training. The security issues are also on stakes and there is a wide need to ensure the secure environment for foreign investors. The researcher considers these two factors as very significant both for improvement of trade and investment environment in country. As the population

56 S Akbar Zaidi, May 21, 2012. The Worst Ever? http://dawn.com/2012/05/21/the-worst-

ever/ (accessed November 30, 2012).


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would be skilled and educated along with enough security measure and proper law and order situation, the foreign investors will automatically enter in country, and prospects for import and export will also brighten.


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