Import Substitution and Economic Resilience: A Policy Based Assessment of Pakistan’s Trade (1980–2023)

Abstract

Import substitution industrialization, or ISI, was a major part of Pakistan's trade and industrial strategy from the early 1980s until 2023. This study looks at how trade policy that favored import substitution affects Pakistan's economic resilience, or its ability to sustain growth, diversify internal capacity, and endure external shocks. Using panel time series data on trade flows, industrial output, sectoral import dependency ratios, GDP volatility, and external shock indicators. Our findings show that small-scale import substitution policies, like sector-specific tariffs, domestic content mandates, and targeted protection, helped reduce import dependency in key industries (auto components, textiles), foster emerging industrial competence, and buffer short-term external shocks. The study recommends dynamic, calibrated ISI that combines export performance incentives, progressive integration, and selective protection in order to increase resilience without compromising long-term trade competitiveness. These findings lend credence to broader policy debates in emerging countries that seek to reconcile industrial strategy with global integration.