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Pakistan's Export Potential: A Gravity Model Analysis

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  • Waheed Akram Butt

    () (State Bank BSC (Bank), The Mall, Rawalpindi)

Abstract

The study employs Gravity Model to estimate Pakistan’s export potentials with the global and bilateral trading partners for the 19 sectors of the economy. We use cross sectional data for 132 exporting and 154 importing countries for the years 2002-03. The study applies the pseudo maximum likelihood methodology to estimate the gravity equation. The results depict that the model fits well with the data and estimation provides reasonable signs and results for distance, geographical, cultural and historical factors employed in the analysis. On the aggregate level, the model identifies highest export potentials with the countries such as India, Japan, Hong Kong, China and USA whereas Pakistan is exhausting its export potentials with some countries namely UK, Turkey and Bangladesh. On the sectoral level, the bilateral results reveal additional export potential for 13 out of 15 sectors with India. Similarly, the sectoral results for China also unveil untapped potentials for Pakistani exporters in 10 out of 15 sectors. Length: 27 pages

Suggested Citation

  • Waheed Akram Butt, 2008. "Pakistan's Export Potential: A Gravity Model Analysis," SBP Working Paper Series 23, State Bank of Pakistan, Research Department.
  • Handle: RePEc:sbp:wpaper:23
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    File URL: http://www.sbp.org.pk/repec/sbp/wpaper/wp23.pdf
    File Function: First version, 2008
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    References listed on IDEAS

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    1. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    2. 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.
    3. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
    4. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters,in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
    5. Loungani, Prakash & Mody, Ashoka & Razin, Assaf, 2002. "The Global Disconnect: The Role of Transactional Distance and Scale Economies in Gravity Equations," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 526-543, December.
    6. Sonali Deraniyagala & Ben Fine, 2000. "New Trade Theory Versus Old Trade Policy: A Continuing Enigma," Working Papers 102, Department of Economics, SOAS, University of London, UK.
    7. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
    8. Antoine Bouët & Lionel Fontagné & Mondher Mimouni & Xavier Pichot, 2001. "Market Access Maps: A Bilateral and Disaggregated Measure of Market Access," Working Papers 2001-18, CEPII research center.
    9. Baldwin, Richard, 1993. "The Potential for Trade Between the Countries of EFTA and Central and Eastern Europe," CEPR Discussion Papers 853, C.E.P.R. Discussion Papers.
    10. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    Cited by:

    1. Hippolyte, Rommell, 2012. "Determinants of Barbados Exports: Preliminary Analysis using a Gravity Model Approach," MPRA Paper 75321, University Library of Munich, Germany, revised Jun 2015.

    More about this item

    Keywords

    Gravity model; export potential;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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