Sarhad J. Agric. Vol.26, No.2, 2010 IMPACT OF TRADE LIBERALIZATION ON EXPORT OF COTTON FROM PAKISTAN: A TIME SERIES ANALYSIS SOFIA ANWAR, FAUZIA SHAUKAT and ZAKIR HUSSAIN Department of Economics, University of Sargodha, Sargodha – Pakistan. ABSTRACT The study analyzed impact of trade liberalization on export of cotton lint from Pakistan over the period of 1971-2008. The effect of trade policy reforms were analyzed in terms of competitiveness, concentration of exports and openness of agricultural trade. The quantitative analysis of the study showed that both domestic and international trade policies had impact on export of cotton lint. World demand for cotton positively affected the export of cotton. Export competitiveness and increase in trade openness led to higher export of cotton. Competitiveness (LCM) showed the maximum contribution towards the increase in export of cotton lint. Key Words: Cotton, Pakistan, Trade liberalization, Competitiveness, Error correction Model, Cointegration Citation: Anwar, S., F. Shaukat and Z. Hussain. 2010. Impact of trade liberalization on export of cotton from Pakistan: a time series analysis. Sarhad J. Agric. 26(2): 297-304. INTRODUCTION Free and fair trade under trade liberalization can lead to the prosperity and economic growth of all participating countries (Bashir, 2003). In last few years economic reforms and liberalization policies are widely adopted in the developing countries regarding the economic growth. Before the 1980s, government intervention was higher in agriculture in both developed and less developed countries. That was reduced after 1980s in many less developed countries along with decrease in tariff and non-tariff barriers (NTBs) to trade, Pakistan also followed and liberalized its trade and investment regime in late 1980s. Tight monetary and fiscal policies were adopted as short run stabilization measures. Long term measures included tariff rate reduction, price controls and removal of exchange rate distortions (Anwar, 2002). Over the globe cotton demand is increasing with the population growth (Baffes, 2004). This silver fiber has involved about 7 million rural households in its production in Pakistan (Orden et al. 2006). Pakistan currently is fourth largest exporter with a share of 7 % in world cotton production. It provides the raw materials to 400 textiles mills and 1000 ginneries. Cotton accounts for 7.5% of the value added in agriculture and 1.6% in GDP (GoP 2008). In the past, cotton production and marketing was subjected to many public policy interventions. An export tax was levied (1988 to 1995) to provide the cheaper raw material for domestic textile industry (Qureshi, 1992, Hudson and Ethridge, 1998). Trade liberalization helped cotton growers to receive international price for 1994-95 crop (Sadiq, 1995). The global economic scenario is under change, resulting in an increased competition and relative competitiveness of different countries. This warrants a significant change in country’s pattern of production, marketing and trade flows. A good cotton crop is a vital force to provide earnings and food to a great chunk of people of Pakistan (Salam, 2008). There is a need for a policy change to boost the export of cotton (Hussain et al. 2006). The general objective of the study is to determine the dynamic effects of trade liberalization on export of cotton lint. While the specific objectives of the study, are to determine the impact of international market conditions and domestic policy on agricultural export performance. At international level, various studies (Alexander and Warwick (2007), Sarkar (2005), Hassler (2004), Marhubi (2000) and Tanaka (2007) showed the positive relationship among the trade liberalization, trade openness and economic growth. Edwards and Alves (2006) found the positive impact of trade liberalization on the export growth of South Africa. The exporters were responsive to trade policies and favorable economic environment. Mwaba (2000) concluded that adoption of trade liberalization policies promoted export from African countries. The persistent export performance required the export diversification, Product promotion and quality improvement in Algeria, Tunisia and Morocco (Mouna and Reza, 2001). The export performance of any sector of a country can be measured through estimating growth, the change in market shares and commodity composition of that sector