STRUCTURAL BREAKS AND TRADE INTEGRATION: EVALUATING EXOGENOUS SHOCKS IN PAKISTAN'S AGRICULTURAL SECTOR

Abstract

Global trade patterns have evolved significantly in recent years, shifting toward supply chains rather than relying on exports of high-volume raw materials and on economies of scale. Given Pakistan's agrarian economy, agricultural trade is a key driver of the country's economic growth. Vertical relationships are facilitated by intra-industry trade (IIT), which increases market integration. In this regard, studying IIT's behavior is crucial for Pakistan. The study aims to explore the dynamics of Pakistan's agricultural IIT by analyzing trade patterns, AIIT stability and mobility as well as structural shifts from 2003 to 2023. The Grubel-Lloyd intra-industrial trade index is used for further analysis. Macroeconomic convergence and structural mobility have been evaluated by using Galtonian regression and Markov transition probability matrices. Moreover, the 2008 Global Financial Crisis, the 2025 China-Pakistan Economic Corridor, and the COVID-19 structural breaks have been studied using piecewise regression. Overall, major economic events such as the 2008 financial crisis and the 2020 COVID-19 pandemic had a significant negative impact on Pakistan's AIIT, whereas the 2015 CPEC had a substantial positive impact. We observe a macroeconomic paradox: overall trade distribution exhibits structural divergence, while some individual commodities show slight upward trends despite an initial lack of competitiveness. The lowest level of integration is observed with 83.58% chances as a result of the low IIT trap.  Not all exogenous shocks disturb IIT to the same extent; rather, they trigger disturbances in the perishable supply chain by causing structural breaks. It is necessary to break this Low-IIT trap by motivating processed supply chains through technological advancements and agro-processing, and by discouraging raw material exports.