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An empirical analysis of Pakistan’s bilateral trade and trade potential with China: A gravity model approach

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  • Muhammad Saqib Irshad
  • Qi Xin
  • Zhang Hui
  • Hamza Arshad

Abstract

The decades-long history of friendly relationship in both countries bore the fruits in the form of Pakistan–China free-trade agreement (PCFTA) in 2006. This paper aims to estimate Pakistan’s bilateral trade potential with China by employing gravity model of trade in a panel data set covering the period 1992–2015. In an attempt to obtain unbiased results we have utilized various estimation methods as suggested by the recent empirical literature on gravity equation to acquire the maximum variation in results. The results from EGLS, REM, two-stage EGLS, GMM, Tobit and PPML have shown that Pakistan’ bilateral trade with all FTA partner countries is positively affected by GDPs, religion, WTO, trade openness in both countries and the common border; whereas negatively affected by geographical distance and inflation. It is also stated that common language and (Trade Agreements) PTA found to be pessimistically exaggerated bilateral trade of Pakistan with FTA partners. The overall PTA effect is negative and highly significant albeit we have found immense trade potential of Pakistan in case of China by most of the estimation techniques. The industry of Pakistan and exporters should adopt new measures to boost and diversify the exports to China and to bring about a reasonable equality in mutual trading relations.

Suggested Citation

  • Muhammad Saqib Irshad & Qi Xin & Zhang Hui & Hamza Arshad, 2018. "An empirical analysis of Pakistan’s bilateral trade and trade potential with China: A gravity model approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1504409-150, January.
    • Handle: RePEc:taf:oaefxx:v:6:y:2018:i:1:p:1504409
    DOI: 10.1080/23322039.2018.1504409
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    Cited by:

    1. Selim Suleyman, 2023. "The Possible Effects of the Belt and Road Initiative on Turkey’s Foreign Trade within the Scope of the Gravity Model: A Modes of Transportation Approach," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 73(73-1), pages 83-105, June.
    2. Saba GULNAZ & Hemlata MANGLANI, 2022. "Does gravity work in the context of India and ASEAN bilateral trade? An application of the FGLS method," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(630), S), pages 143-160, Spring.
    3. Salahuddin & Javed Iqbal & Misbah Nosheen, 2020. "Economic & Cultural Distance & Regional Integration: Evidence from Gravity Model Using Disaggregated Data for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(2), pages 243-274.
    4. Wani Suadat Hussain & Mir M. Afzal, 2023. "Import Determinants and Potential Markets of Pakistan: An Application of PPML Gravity Model," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 33(1), pages 57-73, March.
    5. Enkang Li & Mengqiu Lu & Yu Chen, 2020. "Analysis of China’s Importance in “Belt and Road Initiative” Trade Based on a Gravity Model," Sustainability, MDPI, vol. 12(17), pages 1-21, August.
    6. Fabiola Cruz Navarro-Soto & Elsa-Sofia Morote & Roberto Macha-Huamán & Enzo Arnold Saavedra-Soplín, 2023. "Determinants of Peruvian Export Efficiency: Poisson PML Estimation Approach," Economies, MDPI, vol. 11(6), pages 1-20, June.
    7. Jing, Shuai & Zhihui, Leng & Jinhua, Cheng & Zhiyao, Shi, 2020. "China’s renewable energy trade potential in the "Belt-and-Road" countries: A gravity model analysis," Renewable Energy, Elsevier, vol. 161(C), pages 1025-1035.
    8. Leng, Zhihui & Shuai, Jing & Sun, Han & Shi, Zhiyao & Wang, Zihan, 2020. "Do China's wind energy products have potentials for trade with the “Belt and Road” countries? -- A gravity model approach," Energy Policy, Elsevier, vol. 137(C).
    9. Suadat Hussain Wani & M. Afzal Mir, 2022. "Examining the Trade Determinants and Potential of Pakistan: A Gravity Model Analysis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 27(2), pages 1-19, July-Dec.
    10. Arif Imam Suroso, 2022. "The Effect of Logistics Performance Index Indicators on Palm Oil and Palm-Based Products Export: The Case of Indonesia and Malaysia," Economies, MDPI, vol. 10(10), pages 1-15, October.
    11. Ibrahim Niftiyev, 2024. "Analyzing Bilateral Trade Dynamics between Azerbaijan and Pakistan: A Robust Least Squares Regression Approach," Journal of Economic Analysis, Anser Press, vol. 3(4), pages 250-275, December.
    12. Unbreen Qayyum & Neelum Nigar, 2020. "An Empirical Analysis of Pakistan's Agriculture Trade with China: Complementarity or Competition?," PIDE-Working Papers 2020:23, Pakistan Institute of Development Economics.

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