IDEAS home Printed from https://ideas.repec.org/a/lje/journl/v16y2011i1p23-62.html
   My bibliography  Save this article

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

Author

Listed:
  • 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.)

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.

Suggested Citation

  • Nazia Gul & Hafiz M. Yasin, 2011. "The Trade Potential of Pakistan: An Application of the Gravity Model," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(1), pages 23-62, Jan-Jun.
    • Handle: RePEc:lje:journl:v:16:y:2011:i:1:p:23-62
    as

    Download full text from publisher

    File URL: http://121.52.153.179/JOURNAL/LJE%20VOL-16-1/02_Nazia_&_Yasin.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Carlos Carrillo-Tudela & Carmen A Li, 2004. "Trade Blocks and the Gravity Model: Evidence from Latin American Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 19, pages 667-689.
    2. Maurel, Mathilde & Koukhartchouk, Oxana, 2003. "Accession to the WTO and EU Enlargement: What Potential for Trade Increase?," CEPR Discussion Papers 3944, C.E.P.R. Discussion Papers.
    3. Vedran Sosic & Boris Vujcic, 2002. "SEE and the Trade Potential of Croatia," wiiw Balkan Observatory Working Papers 28, The Vienna Institute for International Economic Studies, wiiw.
    4. Soloaga, Isidro & Alan Wintersb, L., 2001. "Regionalism in the nineties: what effect on trade?," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 1-29, March.
    5. Feenstra, Robert & Markusen, James R. & Rose, Andrew K, 1998. "Understanding the Home Market Effect and the Gravity Equation: The Role of Differentiating Goods," CEPR Discussion Papers 2035, C.E.P.R. Discussion Papers.
    6. Matthieu Bussière & Bernd Schnatz, 2009. "Evaluating China’s Integration in World Trade with a Gravity Model Based Benchmark," Open Economies Review, Springer, vol. 20(1), pages 85-111, February.
    7. repec:bla:scotjp:v:49:y:2002:i:5:p:574-85 is not listed on IDEAS
    8. Clarete, Ramon & Edmonds, Christopher & Wallack, Jessica Seddon, 2003. "Asian regionalism and its effects on trade in the 1980s and 1990s," Journal of Asian Economics, Elsevier, vol. 14(1), pages 91-129, February.
    9. Subramanian, Arvind & Wei, Shang-Jin, 2007. "The WTO promotes trade, strongly but unevenly," Journal of International Economics, Elsevier, vol. 72(1), pages 151-175, May.
    10. Lucian Cernat, 2001. "ASSESSING REGIONAL TRADE ARRANGEMENTS: ARE SOUTH–SOUTH RTAs MORE TRADE DIVERTING?," International Trade 0109001, University Library of Munich, Germany.
    11. Mr. Ludvig Söderling, 2005. "Is the Middle East and North Africa Region Achieving Its Trade Potential?," IMF Working Papers 2005/090, International Monetary Fund.
    12. 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, February.
    13. David Greenaway & Chris Milner, 2002. "Regionalism and Gravity," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 574-585, November.
    14. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
    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 143-153, February.
    16. Bergstrand, Jeffrey H, 1990. "The Heckscher-Ohlin-Samuelson Model, the Linder Hypothesis and the Determinants of Bilateral Intra-industry Trade," Economic Journal, Royal Economic Society, vol. 100(403), pages 1216-1229, December.
    17. World Bank, 2007. "World Development Indicators 2007," World Bank Publications - Books, The World Bank Group, number 8150.
    18. Mustafizur Rahman & Wasel Bin Shadat & Narayan Chandra Das, 2006. "Trade Potential in SAFTA: An Application of Augmented Gravity Model," CPD Working Paper 61, Centre for Policy Dialogue (CPD).
    19. Paas, Tiiu, 2003. "Regional Integration and International Trade in the Context of EU Eastward Enlargement," HWWA Discussion Papers 218, Hamburg Institute of International Economics (HWWA).
    20. Burfisher, Mary E. & Zahniser, Steven, 2003. "Multilateralism and Regionalism: Dual Strategies for Trade Reform," Amber Waves:The Economics of Food, Farming, Natural Resources, and Rural America, United States Department of Agriculture, Economic Research Service, pages 1-8, September.
    21. Leamer, Edward E, 1974. "The Commodity Composition of International Trade in Manufactures: An Empirical Analysis," Oxford Economic Papers, Oxford University Press, vol. 26(3), pages 350-374, November.
    22. 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.
    23. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paola Cardamone, 2007. "A Survey of the Assessments of the Effectiveness of Preferential Trade Agreements using Gravity Models," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 60(4), pages 421-473.
    2. Maria Cipollina & Luca Salvatici, 2010. "Reciprocal Trade Agreements in Gravity Models: A Meta‐Analysis," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 63-80, February.
    3. Estrella Gómez-Herrera, 2013. "Comparing alternative methods to estimate gravity models of bilateral trade," Empirical Economics, Springer, vol. 44(3), pages 1087-1111, June.
    4. Yeshineh, Alekaw Kebede, 2016. "Determinants and Potentials of Foreign Trade in Ethiopia: A Gravity Model Analysis," MPRA Paper 74509, University Library of Munich, Germany.
    5. Mustafizur Rahman & Wasel Bin Shadat & Narayan Chandra Das, 2006. "Trade Potential in SAFTA: An Application of Augmented Gravity Model," CPD Working Paper 61, Centre for Policy Dialogue (CPD).
    6. Salahuddin & Javed Iqbal & Misbah Nosheen, 2020. "Economic & Cultural Distance & Regional Integration: Evidence from Gravity Model Using Disaggregated Data for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(2), pages 243-274.
    7. Sushil Kumar & Shahid Ahmed, 2015. "Gravity Model by Panel Data Approach," Foreign Trade Review, , vol. 50(4), pages 233-249, November.
    8. Tamaş Anca, 2020. "Why should the gravity model be taught in business education?," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 14(1), pages 422-433, July.
    9. Jugurnath, Bhavish & Stewart, Mark & Brooks, Robert, 2007. "Asia/Pacific Regional Trade Agreements: An empirical study," Journal of Asian Economics, Elsevier, vol. 18(6), pages 974-987, December.
    10. Guglielmo Caporale & Christophe Rault & Robert Sova & Anamaria Sova, 2009. "On the bilateral trade effects of free trade agreements between the EU-15 and the CEEC-4 countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(3), pages 573-573, October.
    11. Juan A. Marchetti, 2011. "Do Economic Integration Agreements Lead to Deeper Integration of Services Markets?," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume III, chapter 19, Edward Elgar Publishing.
    12. Haq, Zahoor Ul & Meilke, Karl D. & Cranfield, John A.L., 2011. "The Gravity Model and the Problem of Zero's in Agrifood Trade," Working Papers 116851, Canadian Agricultural Trade Policy Research Network.
    13. Kareem, Fatima Olanike & Martinez-Zarzoso, Inmaculada & Brümmer, Bernhard, 2016. "Fitting the Gravity Model when Zero Trade Flows are Frequent: a Comparison of Estimation Techniques using Africa's Trade Data," GlobalFood Discussion Papers 230588, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    14. Shahriar Kabir & Ruhul Salim, 2016. "Can A Common Currency Induce Intra-Regional Trade? The Southeast Asian Perspective," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 28(3), pages 218-234, November.
    15. Alemayehu Geda & Atnafu Meskel, 2008. "China and India's Growth Surge: Is it a curse or blessing for Africa? The Case of Manufactured Exports," African Development Review, African Development Bank, vol. 20(2), pages 247-272.
    16. Walid Hejazi, 2007. "Reconsidering the concentration of US MNE activity: Is it global, regional or national?," Management International Review, Springer, vol. 47(1), pages 5-27, February.
    17. Shujaat Abbas, 2018. "Free Trade Agreements and International Trade Flow of Pakistan: the Gravity Modelling Approach," Journal Global Policy and Governance, Transition Academia Press, vol. 7(2), pages 71-84.
    18. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
    19. Inmaculada Martínez‐Zarzoso & Felicitas Nowak‐Lehmann D. & Stephan Klasen & Mario Larch, 2009. "Does German Development Aid Promote German Exports?," German Economic Review, Verein für Socialpolitik, vol. 10(3), pages 317-338, August.
    20. Zhang, Daowei & Li, Yanshu, 2009. "Forest endowment, logging restrictions, and China's wood products trade," China Economic Review, Elsevier, vol. 20(1), pages 46-53, March.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • F19 - International Economics - - Trade - - - Other
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lje:journl:v:16:y:2011:i:1:p:23-62. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shahid Salahuddin (email available below). General contact details of provider: https://edirc.repec.org/data/lsecopk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.