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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
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    9. Claudio Candia Campano & Medardo Aguirre González & Lilliam Antón López & Javier Beltrán Valdebenito, 2018. "A gravity model of trade for Nicaraguan agricultural exports," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 37(74), pages 391-428, July.
    10. Hafiz M. Sohail & Mir Zatullah & Zengfu Li, 2021. "Effect of Foreign Direct Investment on Bilateral Trade: Experience From Asian Emerging Economies," SAGE Open, , vol. 11(4), pages 21582440211, October.
    11. Javed, Asif, 2019. "Pakistan’s Agriculture Trade with South Asia," MPRA Paper 95729, University Library of Munich, Germany.
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    13. Wenjun Zhong & Jinhwan Oh, 2015. "How to Attract More Tourists to Korea? Possible Collaborations with China," ERSA conference papers ersa15p595, European Regional Science Association.
    14. wani, Nassir ul & dhami, Jasdeep kaur, 2016. "Trade Potential of India against BRCS Economies: An empirical analysis based on Gravity Model," MPRA Paper 91785, University Library of Munich, Germany, revised 10 Feb 2017.
    15. Rao Muhammad Atif & Haider Mahmood & Liu Haiyun & Haiou Mao, 2019. "Determinants and efficiency of Pakistan’s chemical products’ exports: An application of stochastic frontier gravity model," PLOS ONE, Public Library of Science, vol. 14(5), pages 1-15, May.
    16. repec:gei:journl:v:4:y:2017:i:1:p:75-101 is not listed on IDEAS
    17. Nasir Iqbal & Saima Nawaz, 2017. "Pakistan’s Bilateral Trade under MFN and SAFTA: Do Institutional and Non-Institutional Arrangements Matter?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 56(1), pages 59-78.
    18. Sultan, Maryam & Munir, Kashif, 2015. "Export, Import and Total Trade Potential of Pakistan: A Gravity Model Approach," MPRA Paper 66621, University Library of Munich, Germany.
    19. Ahcar, Jaime, 2018. "Colombia’s potential for trade with the European Union and other major global markets," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    20. Mikrajuddin Abdullah, 2021. "Coulomb-like Model for International Trade Flow and Derivation of Distribution Function for Trade Flow Strength," Papers 2109.14554, arXiv.org, revised Jan 2023.
    21. Syed Tehseen Jawaid, Abdul Waheed, 2017. "Uncertainty and Risk Analysis of Pakistan's Regional Trade: Fan Chart Approach," Journal of Management Sciences, Geist Science, Iqra University, Faculty of Business Administration, vol. 4(1), pages 55-81, March.
    22. Unbreen Qayyum & Neelum Nigar, 2020. "An Empirical Analysis of Pakistan's Agriculture Trade with China: Complementarity or Competition?," PIDE-Working Papers 2020:23, Pakistan Institute of Development Economics.
    23. Muhammad Saqib Irshad & Qi Xin & Saleh Shahriar & Faizan Ali, 2018. "South Koreas potential export flow: a panel gravity approach," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 8(4), pages 124-139, April.

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    More about this item

    Keywords

    Trade potential; gravity model; Pakistan.;
    All these 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

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