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Economic ties and trade blocs increase the flow of trade between participating countries and lead to different levels of economic and structural changes. This paper focuses on the structure of industrial value-added between China and Pakistan, as the two countries recently launched the CPEC (China-Pakistan Economic Corridor) project. This study utilizes panel data from 1995 to 2015 to test certain factor effects on regional value-added through econometric analyses. The results show that each country has its own economic growth rate and market size that respond differently to industrial value-added production. Aggregate factor productivity at China is higher than in Pakistan but growth in factor productivity in the latter is higher than the former; similarly, the share of bilateral trade is higher in the case of Pakistan. Although each country responds differently to the new economic ties, the macroeconomic results support bilateral economic ties between them.

Effect of regional factor productivity on manufacturing sector: The case of Sino-Pak economic ties