Impact of Regulatory Duty on Luxury Imports and Revenue Generation : Analysis of Monthly Data, July 2007- June 2009
Dr. Sajjad Akhtar
Abstract: In Aug 2008, GOP facing severe BOP crisis and preparing for a rescue package from the WB/IMF, decided to impose 15 regulatory duty (RD) on 373 luxury imported items. The purpose of this investigation is to assess whether the imposition of RD on luxury imports had the intended effect, i.e., restraining or reducing $ value imports of luxury items and stabilizing trade revenues. Twenty-four month data from July 2007 to June 2009 (14 months prior to RD and 10 months after the imposition of RD) on $ imports, and import revenues from 373 luxury items is the data base for this investigation.
Isolating the impact of RD on luxury imports during this period becomes a challenging task as the period coincided with the rapid depreciation of Pakistan Rupee along with the contraction in domestic demand due to internal economic and non-economic shocks. Thus an empirical model is utilized to isolate the impact of RD from the price effect due to depreciation of the currency and income effect (proxied by Quantum Index of Manufacturing). The results from the model will enable the policy makers to draw lessons for calibrating the RD regime in terms of its duration life and coverage.
Main findings that emerge from this empirical study are:-
a) The average monthly import bill on 373 luxury items declined from US $ 233 to US $ 94 million between the pre- and post-RD period. Average monthly revenues from these imports however declined marginally from Rs.1.94 to Rs.1.81 billion in the same period.
b) The fall in $ value of imports is mainly due to depreciation of rupee and lower GDP growth rather than to the imposition of RD. The depreciation contributed 61 percent to the decline in imports. In other words if the average monthly decline was US $ 139 million, depreciation contributed US $ 86 million. Regulatory duty contributed US $ 4.5 million to this average monthly decline.
c) Depreciation of the Pak rupee contributed to stabilizing the trade revenues in an environment of falling luxury imports. However, at an aggregate level, imposition of regulatory duty dampened revenue collection. A one percentage point increase in effective RD rate lowered monthly total revenues by 0.002 percent, approximately Rs.4 million in a month.
The study also reports the results of above exercise performed on 7 import sub-categories selected in terms of their importance in total luxury imports and revenue generation.
Understanding Pakistan's Exports Flows: Results from Gravity Model Estimation (By Dr. Yasir kamal)
Abstract: The literature suggested that globalization have positive impact on international trade pattern, which is mainly attributed to ease in trade barriers (tariff and non-tariff), assimilating and globalizing regulatory and customs duties and facilitating access to world markets. The multilateral, sub-regional and bilateral trade agreements have their substantial impact and role in outlining the international trade and promotion of bilateral regional cooperation and integration.
Pakistan has an important position in international and regional trade due to its geographical location, inexpensive labor and abundance of cheap human and natural resources. As compared to the regional partners, the share of Pakistan's exports in the total world trade is declining. According to the world trade organization the share of Pakistan exports in overall world exports is 0.128 percent(2007), which is far behind than its gravitated partners i.e., India 1.04% and China 8.72%, whereas the Asian share in the world total trade stands at 29.61%. In this paper Pakistan's historical trade pattern was analyzed for a data set of 29 years (1980-2008) with neighbors and top exporting countries. In this paper, six years cross sectional data was also analyzed to find out the trade potential of Pakistan with its 04 neighbors and 11 top exporting countries of 2008 and the basis of estimated cross sectional betas, trade potential of Pakistan was estimated.
The results supported that gravity model fits the Pakistan's historical exports data and also fit the cross sectional bilateral exports data of the trading partners. The balance data approach gives better results with a two way random assumption. The estimations suggested significant coefficients for partner's countries' GDP, population and distance variables. It was also concluded that Pakistan has been losing its potential with neighbor countries i.e. India, China and Iran and performing well in case of Afghanistan, US and EU other than Italy.
This area deserve a continuous research to reach to an ultimate conclusion about the long term behavior of Pakistan's export patterns and to identify the Pakistan's trade potential globally with the objectives to facilitate the exporters and policy makers.
Assessing the True Economic Cost of Exports in a Conflict Hit Economy: A Case for Pakistan
Dr. Dawood Mamoon
Abdul Hanan Rasool
Pakistan has been a victim of conflict from the early 1980's with the beginning of Afghan war as across border military, Taliban and Al-Qaeda activity intensified. It has been nearly a decade now that Pakistan had been participating in WOT as a front line state. In recent years Pakistan's participation in WOT has deepened with more visible armed action in Pakistani Northern provinces. So much so that Pakistan (99) ranks close to Sri Lanka (84) and Nepal (109) in incurring costs of terrorism while both the later countries have precedence of armed conflict and civil war spanning decades. The conflict has deepened the structural problems within different sectors of Pakistan's economy and has severe repercussions for the exporting sector currently which would intensify in the years to come.
Recently there has been some efforts made in the international literature to associate global shocks like oil price shock, financial meltdown in USA, subprime mortgage crises in USA, and global recession to WOT - especially armed conflict initiated by USA in Iraq which was an extension of WOT in Afghanistan. Likewise, there is a need to revisit the reasons for Pakistan's deteriorating export growth and relate it with War on terror.
The proposed Study would explore different dimensions of Trade-Conflict nexus. The Trade-Development nexus has been given a lot of attention recently by focusing on the aspects such as Climate Change, Labor rights, Gender dimensions of trade, linkages between Trade and Environment, Trade and Inequality etc. Protracted conflicts put peculiar pressures on the dynamics of ordinary linkages and channels and present specific policy challenges with critical relevance to the future development issues. If international trade is unable to help in the development of hundreds of millions of poor in regions like South Asia, countries like Pakistan might be prone to adopt regressive policies. The average applied tariff has increased in Pakistan by almost 3 % during the last two and a half years. The governments as well as the international agencies would be able to respond more effectively once they understand the Conflict-Trade nexus better.
Therefore the main objectives of the study are:
1. To put forth an estimate of true cost of terrorism incurred by Pakistan in terms of international trade to make the total cost estimates more holistic.
2. The study would identify factors responsible for rising gap between Pakistan's actual and potential exports, in order to provide policy input for effective trade development interventions in helping Pakistani firms regain the lost competitiveness in the international market.