1\ The #CAD is the result of a Saving/Investment imbalance. The sustainable solution to the #CAD entails policies that increase #saving.
2\ #Import duties might be a patch that in the short run curbs imports, but they will curb #exports too. Why? B/C they increase the profitability to sell at home, so firms shift from export to domestic markets. Import duties are implicit #export taxes. They won't reduce the CAD.
3\ Article says: "levy #import duties for everything except food and medicine, so (their) prices won't increase". Incorrect b/c of input-output links. If I tax tractors, food prices will increase (same if oil price increases, all prices down the value chain increase too!)
4\ #Import duties are not just 'not the solution'. They are a big problem. Why? When levied on inputs, they reduce the #productivity of firms, because they reduce their options on how to produce. Higher input tariffs means less productivity, less sales, lower wages. #Pakistan
5\ #Import duties reduce #competition, and increase mark-ups (profits) of firms that are #domestic oriented (at the expense of consumers).
6\ #Import duties in #Pakistan are also #anti-#poor (as the poor consume more goods than the rich, which are subject to #import duties)
The poorest decile faces almost double the burden of import duties than the richest decile.
7\ Let's say you are not convinced by the above. By the fact that import duties don't address the saving investment problem, they discourage #exports, lower #productivity, lower #wages, reduce #competition, increase #rents to the rich, and are #anti-poor. OK. ๐๐
8\ Look at past experience. #Import duties are among the highest in the world in #Pakistan. They have been increasing just as #exports have been falling, and w/ it the trade balance. They didn't work before, they won't work now.
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A month ago I wrote this ๐งต on why #import duties were not the answer to #Pakistan's Balance of Payments constraints. #ImportBans are certainly not the answer either. Rather, they exacerbate the underlying problem. Five thoughts. ๐งต๐
1\ The usual: CAD results from a macro imbalance (Saving too low relative to investment, so foreign saving needed (borrowing) (CAD is the mirror image of borrowing from the rest of the world (financial account of BOP)). Fixing the CAD takes increasing saving (cool off demand).
Thank you for the feedback, dear Yousuf. If you read the article carefully, you will see this is specific & data driven. A short thread to explain. ๐๐๐
Figure 2 in the article is built from a careful analysis combining micro-level *data* from all listed firms in Pakistan, & effective rates of protection (calculated based on FBR data on import duties and the latest input output *data* from IFPRI. It conveys the key message. ๐
Figure 3 comes from a careful econometric analysis we did w/@StefaniaLovo in which we recover markups from the data, and estimated systematic effects of changes in #import duties on these markups. It conveys the key message. ๐
Fast #import growth has overshadowed some very good news in #Pakistan. The latest release of disaggregated #trade data by @StateBank_Pak reveals that the first nine months of FY22 showed #record high #exports in real terms, since there's statistics.
Short ๐งต๐ w/ more results.
1\ #exports grew by 24.8% in the first 9 months of FY22 w.r.t. same period of FY21, reaching 23.7 bn for goods and 5.2 bn for services.
With @StateBank_Pak releasing dissaggregated #trade data for December, we have a picture of the full 2021, which, despite #supply#chain disruptions worldwide, was 'good' for #Pakistan. Short thread below:
1\ #exports grew by 30.1% in 2021 w.r.t. 2020, with a strong pick up in merchandise, but also substantive in services.
On May 26th @StateBank_Pak released #Pakistan's disaggregated #trade statistics for April '21. We now have 10 months of the FY21. Some analysis in #thread below. ๐๐๐
The largest untapped #export potentials for #Pakistan are with #China, and with its own region, #SouthAsia, for about 13 and 12.5 billion respectively, stressing the importance #regional#integration initiatives. 3/n