Research

Working Papers

1. The Impact of Trade Liberalization on Manufacturing Firms: Evidence from Pakistan

With: Shaheryar (Duke University), Zehra Farooq (FBR, Pakistan)
Status: Draft, May 2025

Abstract:
Trade liberalization is one of the most widely used policy tools for stimulating firm growth in developing economies, yet evidence on how firms reallocate inputs in response remains limited. We examine the adjustment dynamics of manufacturing firms in Pakistan following the European Union’s GSP+ preferential trade agreement, which substantially reduced tariffs across key export sectors. Using administrative tax records linked to firm-level tariff exposure and exploiting variation in pre-liberalization protection, we track firm responses along multiple margins. More productive firms respond by expanding capital investment and maintaining employment, while less productive firms contract their wage bills without reinvesting. Despite an overall increase in firm exit rates, we do not find disproportionate attrition among low-productivity firms. These patterns suggest that liberalization reallocates resources toward more productive incumbents and that adjustment occurs not only through exports but also through input reoptimization and restructuring within firms.

2. Towards win-win: Evidence from commercial dispute resolution in India

With: Manaswini Rao (University of Delaware), Sandhya Seetharaman, Raghav Pandey
Status: Draft, October 2024

Abstract:
Courts are central in contract enforcement, and yet we know very little about how they function and their impact in the context of low state capacity. We leverage random assignment of commercial and contractual cases to judges in newly created commercial courts in India to examine the impact of judge-mediated settlement on litigating firms’ profits. The resolution of a case through mutual reconciliation (``settlement’’) rather than a full-length trial is negatively correlated with its duration and its pending status. We estimate a large, positive effect on the profitability of plaintiff, mainly financial sector firms, and negative effects among defendant firms. However, the negative effects among defendants are driven by the timing of suing rather than from settlement. We find suggestive evidence that settlement, in fact, stems the loss, suggesting a Pareto improvement.

3. Causal Impact of Barter Trade Policy during a Foreign Exchange Reserves Crisis

With: Fraz Ahmed (Carnegie Mellon University)

Abstract:
When Pakistan’s foreign exchange reserves collapsed to $3 billion in 2023—covering less than two weeks of imports—the government introduced a barter trade mechanism allowing direct goods-for-goods exchange with Afghanistan, bypassing frozen banking channels. Using transaction-level customs data and product-level variation in barter eligibility, I provide the first causal evidence that alternative payment mechanisms can effectively mitigate crisis-induced trade disruptions.

Barter-eligible products experienced 30% higher export quantities during the crisis peak compared to ineligible products. These effects were crisis-contingent: emerging when reserves were depleted and dissipating naturally as conventional payment systems resumed. The mechanism operated through real trade expansion with minimal price distortion, demonstrating that well-designed temporary interventions can maintain trade during payment system failures without creating permanent market distortions.