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The Trade Potential of Pakistan: An Application of the Gravity Model

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Author Info

  • Nazia Gul

    ()
    (Research Officer at the Economic Advisor’s Wing, Finance Division, Government of Pakistan, Islamabad, Pakistan.)

  • Hafiz M. Yasin

    ()
    (International Islamic University, Islamabad, Pakistan.)

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    Abstract

    This paper attempts to estimate Pakistan’s trade potential, using the gravity model of trade. Panel data for the period 1981-2005 across 42 countries is employed in the analysis. The coefficients obtained from the model are then used to predict the country’s trade potential worldwide as well as within specific trading regions. The results reveal that Pakistan’s trade potential is highest with countries in the Asia-Pacific region (the Association of Southeast Asian Nations [ASEAN]), the European Union (EU), the Middle East, Latin America, and North America. Specifically, the maximum potential exists with Japan, Sri Lanka, Bangladesh, Malaysia, the Philippines, New Zealand, Norway, Sweden, Italy, and Denmark. Therefore, Pakistan should explore ways and means to further improve its trade relations with the countries concerned, and also concentrate on ASEAN, the Middle East, and the EU to increase its market share as far as possible. The volume of trade between Pakistan and other members of the South Asian Association for Regional Cooperation (SAARC) and Economic Cooperation Organization (ECO) is very low, despite the existence of significant potential. The main obstacles to this end are the political and social tensions among neighboring countries, particularly between Pakistan and India, which are the main players of SAARC. The same obstacles exist in the case of the EU and NAFTA, where Pakistani exports are adversely affected by political considerations.

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    Bibliographic Info

    Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

    Volume (Year): 16 (2011)
    Issue (Month): 1 (Jan-Jun)
    Pages: 23-62

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    Handle: RePEc:lje:journl:v:16:y:2011:i:1:p:23-62

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    Related research

    Keywords: Trade potential; gravity model; Pakistan.;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Peter Egger, 2002. "An Econometric View on the Estimation of Gravity Models and the Calculation of Trade Potentials," The World Economy, Wiley Blackwell, vol. 25(2), pages 297-312, 02.
    2. Koukhartchouk, Oxana & Maurel, Mathilde, 2003. "Accession to the WTO and EU Enlargement: What Potential for Trade Increase?," CEPR Discussion Papers 3944, C.E.P.R. Discussion Papers.
    3. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
    4. De Benedictis Luca & Vicarelli Claudio, 2005. "Trade Potentials in Gravity Panel Data Models," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-33, September.
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    11. Greenaway, David & Milner, Chris, 2002. "Regionalism and Gravity," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 574-85, December.
    12. Ludvig Söderling, 2005. "Is the Middle East and North Africa Region Achieving Its Trade Potential?," IMF Working Papers 05/90, International Monetary Fund.
    13. Lucian Cernat, 2001. "ASSESSING REGIONAL TRADE ARRANGEMENTS: ARE SOUTH–SOUTH RTAs MORE TRADE DIVERTING?," International Trade 0109001, EconWPA.
    14. Carlos Carrillo & Carmen A. Li, 2002. "Trade Blocks and the Gravity Model: Evidence from Latin American Countries," Economics Discussion Papers 542, University of Essex, Department of Economics.
    15. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-53, February.
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