Pakistan's Export Potential: A Gravity Model Analysis

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

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