Estimation of import and export demand functions using bilateral trade data: The case of Pakistan

Abstract

We estimated the import and export elasticities of Pakistan trade with traditional trade partners and some Asian countries to see the dynamics of Pakistan trade from 1973 to 2008. OLS results suggest that income is the principal determinant of exports and imports. Pakistan exports are cointegrated with Japan and USA while the imports are cointegrated with UAE and USA. Pakistan imports and exports are cointegrated with Bangladesh and Sri Lanka but not with India and China. Income and exchange rate are both important determinants of foreign trade. Continuing its trade with traditional partners and making efforts for greater market access to USA and EU, Pakistan should make efforts to increase its trade with Asian countries notably China and India because both are fast growing economies and have huge market.

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