Impact of Regional Comprehensive Economic Partnership (RCEP) on Households’ Income and Factors’ Returns in Pakistan: A Global CGE Approach

Abstract

As regional integration has proliferated in most parts of the world, so developing economies across the globe have made it a leading policy instrument to integrate their economies with the global markets and rest of the world through the instrument of trade liberalization. This has led to the establishment of various mega global integrations. Regional Comprehensive Economic Partnership (RCEP) is an example of these global integrations. Currently Pakistan is not part of RCEP, which is likely to be adversely affected due to the expected trade diversion. This paper investigates the possible adverse impact of RCEP on households’ income and real factors’ returns in Pakistan using the MyGTAP model in the global Computable General Equilibrium (CGE) model framework. The results of simulation intimate that the overall impact of RCEP on the economy of Pakistan (as outsider) is negative. There is an overall decrease in real income of all types of households and factors’ returns. Khyber Pakhtunkhwa and Baluchistan may reveal the largest decrease in households’ income. The possible decrease in income may be higher for urban households and non-farm rural households as compared to farmers and farm workers. Additionally, Pakistan is adversely impacted in terms decrease in real GDP, real exports, and imports and also decrease in most of the sectorial exports, sectorial imports and sectoral output. Keeping in view the research findings, this study suggests to the government to undertake remedial measures in advance to avoid the possible adverse impact of RCEP on the economy of Pakistan.