INSTITUTIONAL CAPACITY, GOVERNANCE QUALITY, AND EXPORT DIVERSIFICATION IN PAKISTAN

Abstract

Export diversification and sustained export growth are widely regarded as essential for long-term economic development in developing countries. However, export performance depends not only on market access and price competitiveness but also on the institutional and administrative capacity of the state. This study examines the relationship between institutional capacity, governance quality, and export performance in Pakistan over the period 1995–2022. Drawing on institutional economics and developmental state theory, the study conceptualizes institutional capacity through governance indicators including regulatory quality, government effectiveness, and control of corruption. Using time-series econometric analysis, the findings reveal that weak institutional capacity has significantly constrained Pakistan’s export growth and diversification. The results highlight that improvements in regulatory quality and corruption control are particularly important for enhancing export competitiveness. The study concludes that strengthening institutional capacity is a prerequisite for achieving sustainable export-led growth and structural transformation in Pakistan.