Impact Of Agricultural Trade Liberalization On Economic Growth In China And Pakistan

Trade in agriculture has increased extensively in the last 50 years,but only around the rate of global economic output.A significant factor contributing to this relatively slow growth in the trade is failure to fully engage agriculture in multilateral trade negotiations under General Agreement on Tariffs and Trade(GATT)that have been successfully reduced industrial tariffs.The effects of high border protection have contributed in imports at the expense of international trade of domestic support policies in many developed countries and in some developing countries.In order to gain more market access to the agricultural products in the world markets,the World Trade Organization established an agreement in the agricultural sector.Efforts for liberalization of trade in agriculture began in 1986 when the international community placed the agricultural sector in the General Agreement on Tariffs and Trade.Although one of the goals of establishing a free trade agreement was to support for agricultural exports,and only few were committed to promote agricultural trade among members such as China.Moreover,agricultural products are rarely subjected to such rules of trade liberalization,especially in predominant agricultural economies.This is because,it is believed that a complete liberalization of trade in agricultural products can aggravate poverty and even lead to food insecurity.Full liberalization of agricultural products can lead to the inflow of goods into the domestic markets leading to poor returns to local producers and discouraging local production.Similarly,this can lead to excessive dependence on imported products,poor food safety,increased levels of poverty and a negative impact on the economic growth of economies in agriculture.Additionally,these aspects have made liberalization of trade in agriculture to proceed at a slower pace related to the liberalization of other products.The study has discussed the speculative and observed literature accessible about the roles of agricultural trade liberalization and different viewpoints of economist about open economy and closed economy.The study also describes the general research background,research significance,and different outcomes of other researchers.Later,it describes economic integration between trade and economic growth in general and specific for China and Pakistan.Moreover,literature is reviewed about agricultural trade in China and Pakistan.Furthermore,it includes research questions,research objectives,research methodology,and innovation and limitation of research.Additionally,correlation between agricultural trade and economic growth has been extensively discussed.Likewise,the studies of various researchers found positive and negative findings have been comprehensively discussed.Furthermore,literature about agricultural trade openness and economic growth,trade and agriculture productivity and agricultural trade policy reforms has been presented,including studies about China and Pakistan agricultural trade.Current study briefly describes economic summary of China and Pakistan.Moreover,difference of economies,bilateral trade,performance of agriculture sector,and agriculture share in GDP,growth of agriculture sector,agricultural trade of both countries has been extensively explained.The study assesses the impact of agricultural trade openness on economic growth in China and Pakistan.Time series data from the period of 1980 to 2016 was applied for empirical analysis.Gross domestic product(GDP)was dependent variable as a proxy of economic growth.Agricultural trade openness(AGTOP),Foreign Direct Investment(FDI),Land,Capital Formation(K)and Employment(EMP)were independent variables.The main focus of this study is to investigate the influence of agricultural trade openness on economic growth.In previous studied most of the researcher used trade openness ratio but in this study we used agricultural trade openness by using agricultural trade imports plus exports separated by agriculture GDP.Moreover,in the present study,auto regressive distributed lag(ARDL)model has been used.ARDL model is best for small numbers of observations.ARDL model has two steps.First bound co integration to check either there is long run relationship among variables or not.If upper bound value is greater than F-Static value,then it means there is long run relation among variables.Afterwards,we applied long run co integration to measure the long run correlation amid dependent and independent variables.Error correction mechanism was also applied to see how much readjustment ratio of economy form previous year to next year.Similarly,stationarity analysis,and unit root tests were used for the confirmation of stationarity of data,and some diagnostic tests for model reliability have been debated in current section.Empirical results of the study have been evaluated by investigating the relationship between agricultural trade openness,foreign direct investment,capital formation,agricultural land,employed labor force and GDP in Pakistan and China using time series data for time period of 1980-2016.To examine long-run and short-run association among projected variables,autoregressive distributed lag ARDL-bounds testing approach was employed.ADF and PP tests were used for stationarity analysis.Different diagnostic tests were applied such as BreuschGodfrey Serial Correlation LM Test,ARCH test for Heteroskedasticity,and Jarque-Bera Test for Normality to examine the reliability of analysis.Furthermore,CUSUM and square CUSUM tests were applied to identify the structural stability of the parameters.The findings of the study confirmed a positive and significant long run association between agricultural trade openness,foreign direct investment,capital formation and GDP in Pakistan and China.In case of China,agricultural land has negative and significant impact on GDP.However,no relationship between GDP and employed labor force was found in agriculture.Diagnostic results exhibited no auto correlation and no heteroskedasticty.Moreover,residuals were normally distributed.Furthermore,CUSUM and CUSUM square tests statistically fell inside the critical bound of 5% significant.It meant that there was no structural break in that period.Extended discussion about empirical results has been included in this section.In the present study,results showed positive impact of agricultural trade openness on economic growth for China and Pakistan demonstrating that trade conditions for agricultural products had not shown a declining trend,and trade openness actually had a positive effect in terms of trade in favor of agricultural products.The results showed that the opening up of trade assisted to improve the economic well-being of agricultural producers in China and Pakistan.Similarly,FDI and capital formation also showed positive and significant impacts on both economies.Subsequently,the results revealed that economic growth can be promoted through gross fixed capital formation in a number of ways,including the creation of massive benefits,increasing investment through the creation of expanded markets and economies of scale,through the transfer of information,technology and knowledge spillovers.Likewise,it can also generate a resource-rich exploitation of resources,an improvement of technology and facilities that affect trade,which in turn leads to a higher foreign exchange consumption,and can be used for the expansion of undeveloped economic sectors.Findings of the present study exhibited positive and significant relationship between agricultural trade openness and economic growth of China and Pakistan.Foreign investment and domestic investment showed positive impact for economic growth.Therefore,attention should be paid by the governments on market policies to expand their exports by understanding the importance of extending the exports of agricultural products and further associating them to the world markets by regional free trade zones.Moreover,they should implement the trade liberalization policy in agricultural sector to enhance economic development,respectively.