Chapter 2

Literature Review
2.1 Introduction
This chapter is designed to present the literature review on the impact of
unemployment, poverty, and economic growth. Different studies are available in the
literature are reviewed in this chapter. The arrangement of the chapter is as follows:

 Section 2.2 presents the reviews on the impact of trade liberalization on

economic growth
 Section 2.3 presents the reviews on the impact of trade liberalization on
unemployment
 Section 2.4 presents the reviews on the impact of trade liberalization on
Poverty
 Section 2.5 concludes this chapter
2.2 Reviews on the Impact of Trade Liberalization on Economic Growth

Muhammad et al. (2020) investigated the effect of service trade liberalization on

economic growth by using country-level panel data. From 2000 to 2018, this research
used annual country-level panel data from 189 countries/regions. The econometrical
technique fixed-effect model was used to approximate the effects. The findings
confirmed that trade in services liberalization has a favorable and promising effect on
the countries' economic development. Furthermore, human capital, in combination
with the liberalization of trade in services, has a strong impact on economic growth.

Mohsen & Chua (2020) looked at the effect of trade liberalization on China's
economy from 1980 to 2018. This research employs the Johansen cointegration and
Granger causality tests, as well as impulse response functions and variance
decomposition analysis. GDP is favorably linked to exchange openness, gross fixed
capital investment, final consumption spending, and inflation, but negatively related
to the oil price, according to the cointegration test. The causality test shows short- and
long-run bidirectional causality relationships between trade openness, oil price, gross
fixed capital investment, final consumption spending, inflation, and GDP. The finding
also shows that final consumption expenditure has the greatest impact on GDP,
implying that rising living standards, savings, and trade openness will all have a
significant impact on economic development.
Zeeshan et al. (2019) looked at the effect of trade and financial liberalization on
Pakistan's economic development. The findings were estimated using the
Autoregressive Distributive Lag model. The data used in the analysis ranged from
1973 to 2017. Export to GDP ratios and exports plus imports to GDP ratios were used
as trade liberalization indicators, while net foreign direct investment as a percentage
of GDP and central bank foreign reserves were used as financial liberalization
indicators. Both indices of trade liberalization were found to be statistically significant
and more elastic, while net FDI was found to be negligible and foreign reserves held
by the central bank were found to be statistically significant but less elastic.

Khadka (2019) evaluated the influence of trade liberalization on Nepal’s economic

growth. Data on Nepal's gross domestic product, exports, imports, total trade, and
trade balance from 1980 to 2013 were used.   The data were analyzed using both
descriptive and inferential statistics. The correlation between the specified variables
was determined using correlation analysis. The influence of trade liberalization on
Nepal’s economic growth was studied using multiple linear regression analysis. The
cost of trade has no bearing on the gross domestic product, exports, imports, total
trade, or trade balance. Except for trade balance, trade openness has a positive
influence on all variables. Trade openness had a considerable impact on the economy;
imports increased as buying power increased, and exports grew as well, although only
in the service sector.

Keho (2017) used a multivariate framework with capital stock, labor, and trade
openness as repressors to look at the effects of trade openness on economic
development in Cote d'Ivoire from 1965 to 2014. The Autoregressive Distributed Lag
Bounds test was used to determine cointegration, as well as the Toda and Yamamoto
Granger causality tests. The findings suggested that trade openness has both
immediate and long-term favorable impacts on economic growth. Furthermore, they
showed that trade openness and capital development have a favorable and significant
supportive connection in fostering economic growth.

Hozouri (2017) analyzed the impact of international trade on economic development

agreements and tariff rates. For this study, the dynamic panel data model and a sample
of 12 countries (MENA) from 2000 to 2013 were employed, as well as the
Generalized Least Squares method. The findings revealed that economic growth
sensitivity has a strong and adverse association with tariff adjustments, despite a
favorable association with trade volume.

Ahmad et al. (2017) calculated the influence of trade openness on economic

development in Pakistan. This analysis used time-series data from the period 1975 to
2014. The influence of trade openness on economic growth was calculated using an
econometric technique. In this study, the explanatory variables were gross fixed
capital creation, foreign direct investment, imports, exports, and trade openness,
whereas the dependent variable is a gross domestic product. The Johansson co-
integration technique was utilized to assess the long-term association between
variables. The findings implied that trade openness, imports, exports, and foreign
direct investment all have a favorable influence on economic growth, but gross fixed
capital creation and labor force have a negative influence.

Muhammad et al. (2017) looked at the effects of financial and trade liberalization on
Pakistan’s economic growth. The study used the autoregressive distributed lag
technique (ARDL) and employed time-series data from 1971 to 2014. The findings
revealed that there was a long-term association, and the economic growth model
reveals that labor force (skill), capital stock, and financial liberalization index are all
positively associated with economic growth. Growth was adversely correlated with
the financial openness index and trade openness. According to the study,
policymakers should encourage financial liberalization in the banking and stock
sectors since such policies are favorably associated with economic growth. In light of
the negative correlation between capital account liberalization and economic
development, it is necessary to reconsider capital account liberalization policies.

Zahonogo (2016) explored how trade openness influences economic growth in

developing countries. The study used data from 42 SSA nations from 1980 to 2012 to
run a dynamic growth model. For long-run equilibrium relations, the Pooled Mean
Group estimate methodology was used. The empirical data suggested that there was a
trading threshold below which increased trade openness benefits economic growth
and over which the trade effect on growth decreases. The evidence also showed an
inverted U-curve response, which was resistant to changes in trade openness
measurements and alternative model specifications, implying that the relation between
economic growth and trade openness for Sub-Saharan nations is not weak. It was
stated that to increase their economic growth through international trade, SSA nations
should have more effective trade openness, notably by productively limiting import
levels.

Khalid (2016) looked at the link between trade and economic growth in Turkey. Over
the sample period 1960-2014, the study used the ARDL model to look for a short and
long-term association between trade openness and economic growth. The results
showed that the series was co-integrated. Furthermore, trade openness supports
economic growth in the short run, but this link does not present in the long term.
Furthermore, the findings show that this association was beneficial in the long term
and statistically negligible.

Jadoon et al. (2015) evaluated the influence of trade liberalization on human capital
and economic growth. For the sake of comparison, Asian nations were divided into
two groups: lower-income nations and higher-income nations. For the studied
timeframe, the results suggested that both developed and developing nations benefit
from trade-led growth. Because of well-trained human capital, the impact of trade
openness on human capital was shown to be good for both categories, but substantial
only for the developed nations. Due to their fewer trained and skilled workers,
developing nations have not reaped the benefits of trade openness in the form of
enhanced human capital productivity. For developing nations to reap the full benefits
of trade openness, they must invest in human capital.

Hamad et al. (2014) investigated the impact of trade liberalization on Tanzanian

economic development. The researchers used a simple linear regression model using
real GDP as the dependent variable and trade openness as the independent variable in
their research. The data utilized was annual time series data from 1970 to 2010. The
regression model was estimated twice using the OLS methodology, for the two sub-
periods. Trade openness has a favorable and substantial influence on economic
growth in Tanzania, according to the empirical data. However, during the closed
economy phase, this influence was far greater than during the open economy period.
Based on the findings it was suggested that the government has to take a proactive
approach to increase the value of its exports to compensate for imports.

Umer (2014) used an autoregressive distributed lag technique to look at the effects of
trade openness on Pakistan’s economic development from 1960 to 2011. Trade
volume, investment, and human capital all have a positive and considerable influence
on economic growth. The findings also showed that trade restrictions have a long-
term negative and considerable influence on economic growth. Furthermore, the
findings demonstrated that the influence of trade openness on economic development
is not immediately apparent. The findings showed that developing nations, such as
Pakistan, should consider trade openness as part of their long-term strategy.

Hye et al. (2014) investigated the short and long-term effects of economic
liberalization on economic development in Pakistan from the period of 1971 to 2011.
The findings revealed that economic liberalization measures had a short-term
favorable influence on economic development. In the long run, however, trade
liberalization was connected with lower economic growth. Second, the computed
coefficients from the rolling window demonstrate that the influence of economic
liberalization on real GDP was inconsistent during the sample period. Policymakers
should invest more in education to improve human capital, according to this report.
Financial changes, such as sectoral credit allocation, should also be implemented to
further boost economic growth.

Shaheen et al. (2013) looked at the influence of trade liberalization on Pakistan’s

economic growth from 1975 to 2010. Explanatory factors such as trade openness,
gross fixed capital formation, foreign direct investment, and inflation were crucial,
whereas the dependent variable Real GDP was utilized to specify the model. For long-
term relationships, the Johansen Co-integration technique was adopted. Trade
liberalization and Gross Fixed Capital Formation both have a favorable and
considerable influence on economic growth, according to the findings. Inflation and
foreign direct investment both have a detrimental impact on economic growth.

Manni & Afzal (2012) examined the influence of trade liberalization on Bangladesh’s
economy by using data from 1980 and 2010. After trade liberalization, this study
examines the economy’s successes in terms of crucial factors such as growth,
inflation, export, and import. For empirical findings, the article employed the simple
Ordinary Least Square (OLS) procedure. Openness, capital growth rate, labor force
growth rate, and a dummy variable for natural disasters were the dependent variables,
whereas openness, capital growth rate, labor force growth rate, and a dummy variable
for natural disasters were the independent factors. According to the findings, GDP
growth rose as a result of liberalization. Trade liberalization appears to have little
impact on inflation in the economy. With more openness, both actual exports and
imports have grown. Liberalization policies undoubtedly boost the country’s exports,
resulting in stronger economic growth after the 1990s. The outcomes of this study
might serve as a useful model for developing-country trade liberalization policy
research.

Azhar (2012) investigated the influence of trade liberalization on Pakistan's economic

performance for the period 1977-2008. The aggregate production function for the
Pakistani economy was calculated using the multiple linear regression estimation
approaches. The data suggested that trade liberalization has a favorable influence on
economic growth. The negative but statistically significant coefficient for Foreign
Direct Investment in Pakistan is one of the research’s most interesting findings. One
important cause for this negative indicator might be the widespread privatization of
state-owned firms. This study recommended that trade liberalization should be
maintained for the country’s long-term economic prosperity.

Yavari & Mohseni (2012) looked at the influence of trade liberalization and the
buildup of physical and human capital on Iran's economic growth from 1959 to 2007.
The study discovered a unique long-run link between economic growth and its
primary factors using co-integration techniques and a vector error correcting model.
Physical and human capital stocks, labor force, real non-oil exports, and import tariffs
are among the factors. Furthermore, the examination of short-term error correction
dynamics revealed that trade liberalization has a large long-run beneficial impact on
economic dynamics.

Chaudhry et al. (2010) used co-integration and Granger causality techniques of time
series econometrics to study the causative link between trade liberalization, human
capital, and economic growth in Pakistan for the period 1972-2007. The data on trade
liberalization and economic growth comes from the ESDS international website,
while the human capital index was built using data from the Pakistan economic
survey. The empirical findings showed that the growth model’s variables have short
and long-term co-integration and causation linkages. It means that measures like
education and trade openness may be possible with long-term economic growth. It’s
also discovered that trade liberalization and human capital are both linked to
economic growth. 

Yasmin et al. (2006) investigated how trade liberalization has impacted the country’s
economic development. Over the period 1960-2003, its impacts were evaluated
concerning four economic development indicators: per capita GDP, income
inequality, poverty, and employment. A simultaneous equation model was used in the
primary analysis. The model was calculated using the 2SLS regression analysis
methodology, which takes into account the simultaneity of the specified development
metrics. The findings reveal that trade liberalization did not have a consistent impact
on all of the development indicators studied across the research period. It had a
favorable impact on employment but harmed per capita GDP and income distribution.
However, it had little effect on poverty. The clear conclusion was that trade
liberalization has not benefited all of Pakistan's development indices. As a result, a
careful approach to liberalization was required. The goal of trade liberalization should
be to increase the performance of mediating factors while also concentrating exports
on labor-intensive goods.

Dutta & Ahmed (2004) investigated the link between trade policy and industrial
growth in Pakistan by using data from the period 1973–1995. The methodologies of
cointegration and error corrective modeling were used. The empirical findings
implied that the aggregate growth function of industrial value-added and its primary
variables of real capital stock, labor force, real exports, import tariff collection rate,
and secondary school enrollment ratio have a unique long-run connection. By
constructing an error correction model, the short-term dynamic behavior of Pakistan’s
growth function of industrial value-added was explored, and the error correction term
was shown to be appropriately signed and statistically significant.

2.3 Reviews on the Impact of Trade Liberalization on Unemployment

Nwosa et al. (2020) looked at the relationship between trade openness and
unemployment rates in Nigeria. The study used time series data from 1980 to 2018.
The auto-regressive distributed lag (ARDL) methodology was used in the analysis,
and the results indicate that trade openness has a negative and substantial effect on
Nigeria's unemployment rate. As a result of this finding, trade openness creates job
openings in Nigeria, lowering the country's unemployment rate. As a result, the report
concludes that trade openness in Nigeria is a significant determinant of
unemployment. The study proposes deliberate economic policies that encourage
foreign private investment, capable of increasing the country's aggregate amount of
investment and contributing to job creation in Nigeria. Finally, the government should
look at alternative marketing avenues for international investors, which will further
create jobs.

Hossain et al. (2018) investigated whether trade openness affected unemployment in

Bangladesh. The research further examines the association between public education
spending and unemployment. Using VECM, the thesis investigates the relationship
between unemployment and trade openness in Bangladesh, using time series data
from 1990 to 2016. The results show a strong connection between trade openness and
unemployment. In the long term, investment in education reduces unemployment,
while trade openness policies raise unemployment. However, the initial effect of
openness captured by short-term dynamics is observed to increase unemployment,
even though public education spending has a little immediate impact on the country's
unemployment. Further research reveals that the short-term shock is restoring
equilibrium, and trade openness is the most powerful solution to restore equilibrium.
However, higher education spending has had little effect on restoring equilibrium.

Alamro (2017) examined the influence of trade liberalization on Jordan’s economic

growth by looking at increases in employment and productivity over time (1980-
2014). The econometric approach Augmented Dickey-Fuller test was used to
determine if the variables in this study were stationary. The variables were non-
stationary at their levels, but they become stationary at their first difference. The
Johansen cointegration test was also used, and it was discovered that the variables in
the model had just one cointegration vector. A long-run association was established
between real gross domestic product per capita and trade openness, unemployment
rate, and labor productivity using the vector error correction model (VECM).
Furthermore, the explanatory factors had a positive and substantial influence on
Jordan's economic growth in the long run, but a non-significant influence in the short
run, according to VECM. The impulse response function and variance decomposition
test, on the other hand, demonstrated that trade liberalization had a favorable
influence on economic growth, labor productivity, and unemployment rate.
Mujahid & Zeb (2016) investigated the influence of trade openness on Pakistani
unemployment. The time-series data for the years 1995 to 2015 was utilized to
achieve the study’s goals. The study used an ARDL technique to Cointegration. The
impact of trade liberalization on unemployment is negative and considerable.
According to the study’s authors, the government may have a role in improving the
trade sector, which would have a substantial influence on lowering unemployment.

Anjum & Perviz (2016) looked at the effect of trade openness on unemployment in
both capital-rich and labor-rich nations. The inflation rate, economic development,
population growth, and political rights were employed as control variables in the
study. The study examined data from 75 labor-abundant nations and 44 capital-
abundant nations from 1990 to 2012 for this purpose. The normality and stationarity
of the variables of interest were checked using the IPS panel unit root test, and the
long-term correlations between the variables were checked using mean group and
pooled mean group heterogeneous panel cointegration procedures. In the case of
nations with abundant labor, trade openness has a long-term negative influence on
unemployment. The rate of inflation and the quality of institutions both have a
negative and considerable influence on unemployment. In labor-rich nations, on the
other hand, population growth is positively and strongly associated with
unemployment. In the case of capital-abundant countries, however, trade openness
has a long-term beneficial influence on unemployment. The rate of inflation has a
major negative influence on unemployment.

Amini & Moradzadeh (2015) analyzed the influence of trade liberalization on

unemployment in Iran. Data were gathered during the years 2000 to 2009. For the
Trade liberalization Variable, the study employed a Fraser Institute-defined indicator
called "freedom to trade globally." The generalized technique of moments was
employed in this work as an econometric tool (GMM). The study’s findings suggested
that trade liberalization has a negative and significant impact on unemployment rates.
As a result, trade liberalization may have a favorable impact on job creation and
unemployment reduction. Also, GDP has a negative and significant impact on
unemployment, whereas labor force and capital per capita factors have a positive and
significant impact.
Cheema & Atta (2014) investigated the drivers of unemployment in Pakistan using
the ARDL bound technique and time-series data from 1973 to 2010. Unemployment
has statistically significant positive correlations with the output gap, productivity, and
economic uncertainty, but statistically significant negative associations with gross
fixed investment and trade openness, according to the findings. It was advised that the
output gap be narrowed at the policy level. The government should implement a
devaluation policy and reduce trade barriers. Government should not only undertake
investment initiatives on its own but should also stimulate private investment.

Wajid & Kalim (2013) investigated the influence of inflation and economic growth,
as well as trade openness and urban population, on unemployment in Pakistan for the
period 1973–2010. To test the unit root problem, we used the Augmented Dickey-
Fuller test, and we used the Johansen Juselius (1990) Maximum Likelihood Approach
to determine the long-run relationship between unemployment, inflation, economic
growth, trade openness, and urban population as a percentage of the total population.
In the long run, inflation has a significant negative impact on unemployment; in the
short run, economic growth has a significant negative impact on unemployment; and
in the long run, trade openness has a positive and insignificant impact on
unemployment, but this impact becomes significant in the short run. Finally, the
study's findings shed light on the influence of urban population as a percentage of the
total population on unemployment in the long and short run, revealing that urban
population as a percentage of the total population has a negative influence on
unemployment in both the long and short term.

Nwaka et al. (2015) used time-series data from 1970 to 2010 to examine the effects of
trade policy on unemployment rates in Nigeria. The vector error correction approach
was used in the research. These variables, in a system of equations, include measures
of trade openness, public recurrent spending on education, foreign price shocks, and
real gross domestic product or income per capita, to investigate the impact of a range
of variables on the relationship between trade openness and national unemployment
rates. The findings showed that while real output and income per capita contribute to
lower unemployment in the long run, trade openness policies contribute to higher
unemployment. Foreign policy shocks, as measured by commodity prices, have a
favorable influence on unemployment rates but do not help to bring the system back
into balance. However, it was seen that the early impact of openness and foreign price
shocks represented by short-term dynamics reduces unemployment.

2.4 Reviews on the Impact of Trade Liberalization on Poverty

Ghazanfar et al. (2021) looked at the relationship between trade liberalization,

economic growth, and poverty in four SAARC countries (Bangladesh, India, Pakistan,
and Sri Lanka). For the period 1980-2019, data on inflation, trade liberalization, and
economic growth were gathered from the World Bank website. To investigate the
connection between trade liberalization, economic growth, and poverty, the ARDL
(Autoregressive Distributed Lag Approach) method is used. In the case of
Bangladesh, the study discovered a strong short-term association between trade
liberalization and poverty, but no long-term relationship. When we used tariffs as an
indicator of trade liberalization, the effects were the same. In the case of India, there is
no substantial connection between trade liberalization and poverty, both in the long
and short run. In the case of Pakistan, there is no substantial short-term association
between trade liberalization and poverty, but there is a significant long-term
relationship. In the case of Sri Lanka, there are important short-term and long-term
relationships.

Onakoya et al. (2019) looked at the connection between trade liberalization and
poverty in 21 African countries from 2005 to 2014. To approximate the outcome, the
researchers used the pooled OLS methodology and the panel co-integration test. The
results show that foreign direct investment and the rate of inflation have a positive
relationship with the human development index, while exchange rates and trade
transparency have a negative relationship with poverty at the 5% level. The study
recommended immediate structural changes to improve poverty alleviation services.
According to the analysis, developing countries should approach other developing
countries in the spirit of collaboration to diversify their export markets. In addition,
those countries should think about joining or improving regional economic
integration. In the export-oriented market, incentives for development and human
capital building should be implemented. Any nation must have social and economic
strategies in place to shield itself from the negative impacts of reduced trade barriers.

Durongkaveroj & Ryu (2019) investigated the relative impact of trade liberalization
on poverty in Thailand from 1995 to 2005. Using instrument variable estimation, the
study discovered that provinces with higher concentrations of employment in
industries subject to higher tariff reductions experienced lower poverty and higher
income growth than provinces with lower concentrations of employment in industries
subject to lower tariff reductions.  In addition, in metropolitan regions, the effects on
poverty and income were more prominent. The uneven consequences of trade
liberalization are mitigated by high labor mobility across areas within the country and
between industries.

Wang & Hu (2018) looked at how trade liberalization affects poverty reduction in
China’s rural areas. The influence of trade liberalization on poverty probability was
estimated using the Probit model. The influence of trade liberalization on the income
level of poor inhabitants in rural regions is estimated using the income deciding
equation. The income-determining equation was also used to investigate how trade
liberalization affects rural poverty transmission. According to this study, trade
liberalization can minimize the likelihood of rural populations falling into poverty and
help them raise their income. Through transmission mechanisms such as increasing
economic growth and financial expenditure, trade liberalization raises poor citizens'
income and lowers poverty.

Adha et al. (2018) used an Ordinary Least Square approach to examine the influence
of trade liberalization on poverty reduction from the period 1984 to 2017. To measure
trade liberalization, the Trade Openness Ratio is utilized as a dependent variable.
Other factors like GDP, the exchange rate, and the labor force are used as control
factors. The empirical findings demonstrate that TOR and the labor force have a
beneficial effect on poverty, whilst GDP and exchange rate have a negative effect.
This conclusion differs from past studies, particularly in areas where trade
liberalization has had a detrimental impact on poverty. This was understandable since
Indonesian enterprises are unprepared to compete with international enterprises in
areas where there was a high level of competition.

Ali et al. (2018) looked at the influence of trade liberalization on employment,

poverty reduction, and how trade openness influences economic growth in Pakistan.
Although poverty and unemployment were on the rise, this study found that
macroeconomic indices are improving. Data from 1971 to 2015 was used in this
study. The impact of trade liberalization was investigated using annual data on
macroeconomic variables such as per capita income for the industrial and agricultural
sectors, employed labor force, inflation, and per capita GDP. To estimate short and
long-term relationships among variables, Johansen Co-integration and Error
Correction Method (ECM) are used. To assess the causal relationship between trade
openness and other factors, the Granger causality test is used. In the short run, trade
openness has a negative link with per capita income in the industrial sector, employed
labor force, and inflation, whereas it has a positive link with per capita income in the
agricultural sector. In the long term, trade liberalization has a positive relationship
with agricultural and industrial per capita income, employed labor force, and inflation,
but an inverse relationship with per capita GDP.

Shahid et al. (2017) investigated the impact of governance and liberalization on

poverty reduction. The data was collected between 1986 and 2012. To arrive at the
empirical conclusions, the researchers used the autoregressive distributive lag
methodology. The econometric analysis found that governance and trade
liberalization had a statistically significant detrimental impact on poverty reduction.
Improvements in health and education facilities have been considered as a way to
eliminate poverty.

Chaudhry & Imran (2013) explored the influence of trade liberalization in alleviating
poverty and inequality in Pakistan. The data sets utilized were from 1980 to 2010, and
the findings were analyzed using the ARDL method. Time-series regression analysis
reveals that while trade liberalization decreases poverty, it has no statistically
significant influence on aggregate poverty or income inequality in Pakistan in the
medium term. Over time, trade liberalization has a significant impact on poverty and
inequality. In the short run, foreign remittances and gross capital formation were
found to be statistically significant and highly elastic in lowering poverty and income
inequality. The findings of this study are also in line with the findings of previous
research, which found that trade liberalization had a mixed effect on the lives of the
poor and inequality in developing countries.

Batool & Saghir (2013) investigated the influence of trade liberalization on poverty
from 1973 to 2012. Poverty was used as a dependent variable, with trade
liberalization, foreign direct investment, the labor force participation rate, and per
capita income as independent factors. The Autoregressive Distributed lag (ARDL)
test was used to determine long and short-run associations between variables. The
absolute and relative numbers in the study show that trade liberalization has a greater
impact on poverty. The study also showed the poverty rate, which might be decreased
by employing the unemployed.

Ahmad et al. (2012) analyzed the influence of income disparity, population growth,
and trade liberalization on poverty in Pakistan. The data utilized in this study ranged
from 1981 to 2008. The findings were calculated using cointegration normalized
regression. The dependent variable was the Human Development Index, whereas the
independent variables were the Gini coefficient, population growth rate, political
stability, trade liberalization, and lagged HDI. The findings implied that income
disparity and population increase were associated with poverty, but trade
liberalization was associated with poverty. According to the study, population growth
and income disparity gaps should be controlled to eliminate poverty. Globalization
and trade liberalization, on the other hand, was critical.

Khan & Bashir (2011) investigated the link between trade liberalization and India’s
poverty and inequality. The volume of trade as a percentage of GDP, the headcount
ratio for poverty, and the Gini coefficient for income inequality have all been used to
measure trade liberalization. The granger causality methodology was used to analyze
time-series data from 1970 to 2009. The findings showed that trade has no
substantial impact on poverty and that poverty has no substantial impact on trade.
However, trade has exacerbated inequality in the short term, and inequality has had a
detrimental impact on trade in the long run.

Majeed (2011) used data from 1970 to 2006 to look at the impacts of trade
liberalization on Pakistan’s development. The findings were estimated using the
GMM econometrics approach. The findings suggested that trade liberalization has a
negligible impact on per capita GDP, although the sign was positive. Trade
liberalization has a detrimental impact on employment. Although trade theory implies
that trade openness was a potential source of economic growth, with positive spillover
effects on the labor market, this analysis indicated jobless-openness phenomena in
Pakistan. It was also found that trade liberalization has worsened income inequality
by simultaneously creating winners and losers, resulting in a negative welfare impact.
In terms of poverty eradication, it was found that trade exacerbates, not ameliorates,
and that trade intensifies, not lessens poverty in Pakistan. Human capital has emerged
as a positive factor in increasing per capita GDP and eradicating poverty. The study
concluded that trade liberalization was not pro-development in Pakistan and that
human capital investment was the most effective strategy for development and
poverty reduction.

2.6 Conclusions

This chapter presents the literature review on the impact of trade liberalization on
economic growth, poverty, and unemployment. It was observed in the literature that
trade liberalization positively boosts economic growth, negatively affects the poverty
and unemployment rate. Different techniques were used to estimate the results based
on the stationarity analysis such as the OLS method, ARDL approach, Johanson
Cointegration approach, and causality analysis. Very limited literature was observed
in the case of China. As china’s economy is growing rapidly and their trade with other
countries of the world is increasing at a greater rate so that it is important to
investigate the role of trade liberalization on economic growth, poverty, and
unemployment in China. This study will provide important implications and may
useful for policymaking.