Open AccessThe Trade Potential of Pakistan: An Application of the Gravity Model
Author(s) -
Nazia Gul,
Hafiz Muhammad Yasin
Publication year - 2011
Publication title -
the lahore journal of economics
Language(s) - English
Resource type - Journals
eISSN - 1811-5446
pISSN - 1811-5438
DOI - 10.35536/lje.2011.v16.i1.a2
Subject(s) - gravity model of trade , latin americans , international trade , politics , middle east , development economics , panel data , east asia , economics , bilateral trade , european union , geography , international economics , political science , china , archaeology , law , econometrics
This paper attempts to estimate Pakistan’s trade potential, using thegravity model of trade. Panel data for the period 1981-2005 across 42 countries isemployed in the analysis. The coefficients obtained from the model are then usedto predict the country’s trade potential worldwide as well as within specifictrading regions. The results reveal that Pakistan’s trade potential is highest withcountries in the Asia-Pacific region (the Association of Southeast Asian Nations[ASEAN]), the European Union (EU), the Middle East, Latin America, andNorth America. Specifically, the maximum potential exists with Japan, SriLanka, Bangladesh, Malaysia, the Philippines, New Zealand, Norway, Sweden,Italy, and Denmark. Therefore, Pakistan should explore ways and means tofurther improve its trade relations with the countries concerned, and alsoconcentrate on ASEAN, the Middle East, and the EU to increase its market shareas far as possible. The volume of trade between Pakistan and other members of theSouth Asian Association for Regional Cooperation (SAARC) and EconomicCooperation Organization (ECO) is very low, despite the existence of significantpotential. The main obstacles to this end are the political and social tensionsamong neighboring countries, particularly between Pakistan and India, whichare the main players of SAARC. The same obstacles exist in the case of the EUand NAFTA, where Pakistani exports are adversely affected by politicalconsiderations.