Political Instability in Pakistan & Its Effect on Trade

Pakistan became an independent Muslim country in 1947 when it was partitioned from India. Since that time, Pakistan has struggled to create a unified national identity or agree on a constitution due to competing regional interests within its diverse population. In turn, Pakistan's lack of political unity has negatively affected its trade, due to the government's inability to reform domestic trade policies or form bilateral relationships with regional neighbors.

Pakistan is comprised of provinces with distinct cultures -- including 20 recognized languages -- and varying levels of political and economic development. Besides competing provincial interests, political unification has been stymied by debate over whether Pakistan should have a secular or an Islamic government. In the absence of national political unity, Pakistan's military has routinely stepped in and governed by force. In terms of trade, the World Bank has identified several areas where Pakistan's tenuous government leadership -- which has often been preoccupied with political self-preservation instead of national economic interests -- has failed to improve the country's competitiveness, including problems in trade logistics, the availability and cost of electricity and food safety standards.

Pakistan's chief exports are textiles and apparels. These goods are also exported by its regional neighbors whose lower trade barriers make them more competitive. Pakistan's lack of competitiveness is largely attributed to its protectionist trade policies, which the government has historically failed to reform due to internal political tensions. Lack of political unity is also responsible for weak bilateral relations between Pakistan and its regional neighbors. As a result, the bulk of Pakistan's trade is with partners outside of South Asia, including imports from the Arabian Gulf and China, and exports to the EU and the U.S.

Pakistan's government has failed to establish strong bilateral relations with India, which received just 4.2 percent of Pakistan's total trade in 2012. According to the Wilson Center, Pakistan's potential for trade with India is at least 10 times greater. Historically, Hindu-Muslim religious differences and territorial disputes over the Kashmir region have resulted in rocky relations between Pakistan and India, but strong special interests in Pakistan have also swayed the policies of its political leaders. Pakistan's government has been unable to turn public opinion in favor of bilateral relations with India because the Pakistani media -- which opposes such measures -- has greater sway. Anti-India platforms of opposition parties in parliament and concerns of industrial lobbies over competition with Indian-made goods have pressured Pakistan's political leaders to oppose trade reform.

Due to its sizable ethnic Pashtun population, Pakistan has historically held great influence inside Afghanistan, including with the Taliban. Following the American-led military invasion of Afghanistan in 2001, Pakistan severed much of its political ties with the Taliban and aligned itself with U.S. foreign policy interests. Afghanistan was previously an important trade corridor for Pakistan, offering lucrative routes to Central Asia and China. Due to competing political interests, as well as conflicting loyalties toward U.S. policy, the Pakistani government has failed to create a cohesive approach toward Afghanistan or pacify transportation corridors along its mutual border regions with Afghanistan. As a result, Pakistan has yet to fully capitalize on the potential for robust bilateral relations and trade with the resource-rich countries of Central Asia.