Pakistan Institute of Development Economics


Does Infrastructure Development Promote Regional Economic Integration? CPEC’s Implications for Pakistan

Regional integration is a dominion scheme between countries to promote steady growth, macroeconomic cooperation, connectivity and peace through common institutions and rules. The concept of regional integration is multidimensional. However, the key attribution is economic or trade integration. CPEC is the emerging agreement between China and Pakistan. The benefits associated with CPEC have become hot cake of discussion for researchers. CPEC includes flow of capital, ICTs, manpower and construction of mega infrastructure. Based on existing studies, infrastructure contributes towards growth. But is infrastructure development encourages regional economic integration besides CPEC, is our question of interest. For this purpose, this study employs the data for Pakistan’s economy from 1972-2014. Trade liberalisation is used to indicate the regional economic integration (REI). An infrastructure index based on multiple indicators has been constructed through PCM. Empirical results indicate that well developed infrastructure significantly and positively contributes towards REI. Also polity index (a measure of democracy) and FDI are positively and significantly affecting REI where REI is significantly and negatively associated with inflation and exchange rate. This study confirms the proposed positive outcomes associated with CPEC due to infrastructure development in Pakistan. In addition, the study provides an insight to the challenges regarding CPEC and proposes some policy implications to improve the situation in Pakistan.

Ayza Shoukat, Khalil Ahmad, Muhammad Abdullah

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