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Analyzing Bilateral Trade Dynamics between Azerbaijan and Pakistan: A Robust Least Squares Regression Approach

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  • Ibrahim Niftiyev

    (Department of International Economics and Business, Azerbaijan State University of Economics (UNEC), Baku, Azerbaijan)

Abstract

The diplomatic relations between Azerbaijan and Pakistan have undergone significant development since the late 1990s. Despite some studies focusing on diplomatic and political relations, the economic dimension of this partnership has not been systematically covered. In this paper, a robust least squares (RLS) approach is used to model bilateral trade between the two countries and identify statistically significant determinants, including economic, institutional, and cultural factors, after analyzing the main economic and subsectoral trade dynamics of both countries. The results reveal that Azerbaijan's imports from Pakistan are significantly associated with the country's higher income and market size, while Pakistan's elevated exchange rate and trade costs hinder bilateral trade. In addition, Pakistan's rising manufacturing output increases exports to Azerbaijan but decreases imports from Azerbaijan. Among institutional determinants, government effectiveness, the trade freedom index (TFI), and political stability play significant roles in bilateral trade. Lastly, it was found that cultural proximity increases Pakistani exports to Azerbaijan but not imports from Azerbaijan. The analysis also indicates that domestic savings stimulate Pakistani exports. These findings underscore the complex nature of bilateral trade between Azerbaijan and Pakistan and highlight the need for institutional arrangements to harmonize trade flows and boost welfare gains from trade. The results may be of great importance to intergovernmental working groups, domestic policymakers, and businesses.

Suggested Citation

  • Ibrahim Niftiyev, 2024. "Analyzing Bilateral Trade Dynamics between Azerbaijan and Pakistan: A Robust Least Squares Regression Approach," Journal of Economic Analysis, Anser Press, vol. 3(4), pages 250-275, December.
    • Handle: RePEc:bba:j00001:v:3:y:2024:i:4:p:250-275:d:307
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    References listed on IDEAS

    as
    1. Muhammad Saqib Irshad & Qi Xin & Zhang Hui & Hamza Arshad, 2018. "An empirical analysis of Pakistan’s bilateral trade and trade potential with China: A gravity model approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1504409-150, January.
    2. Saleem KHAN* & Sher ALI** & Saima UROOGE**, 2019. "The Analysis Of Regional Bilateral Trade Between Pakistan And Central Asian Republics," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 29(1), pages 93-106.
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