Washington Consensus Development Hypothesis: The Case of Pakistan

Abstract

This article uses the seemingly unrelated estimation method to estimate the reduced-form of a simultaneous system of two equations to examine the export-led growth hypothesis for Pakistan over 1970 2011. Estimation results reveal the bidirectional dynamic causality between real exports and real GDP. This empirical finding indicates that the Pakistani real GDP and exports effect each other’s.  Additional determinants of real GDP growth and exports are also found to be significant. As to the policy implications, the empirical results suggest that Pakistani policy makers should consider introducing some aspects of import subsidized development strategy to their economic development process. This policy recommendation is based on the findings that the dynamic causality between Pakistani exports-GDP growths is bidirectional and how real terms of trade, capital, employment and the real foreign output affect them.