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A Gravity Model Approach towards Pakistan’s Bilateral Trade with SAARC Countries

Author

Listed:
  • Jan Waheed Ullah

    (Ph.D. Research Scholar, Department of Economics, Gomal University, Dera Ismail Khan, Pakistan)

  • Shah Mahmood

    (Associate Professor, Department of Economics, Gomal University, Dera Ismail Khan, Pakistan)

Abstract

This research paper attempts to estimate the bilateral trade of Pakistan with SAARC countries using a gravity model of trade. This panel study covers the period from 2003 to 2016. The empirical results are obtained through pooled OLS, fixed-effects, and random-effects estimators. On the basis of Hausman test results, the paper concentrates only on the findings of the fixed-effects model. The empirical findings reveal that the GDPs of both Pakistan and the partner country have a positive impact on bilateral trade. Market size has a negative impact on trade and this is justified on the basis of the absorption effect. Similarly, distance and exchange rate also have a negative correlation with bilateral trade. The study finds that Pakistan has very low trade with India and Afghanistan, despite the common border. A common language has a positive but insignificant impact on Pakistan’s bilateral trade. The Paper also attempts to calculate the trade potential of Pakistan. The findings reveal that Pakistan has high trade potential with all SAARC member countries except the Maldives and Afghanistan.

Suggested Citation

  • Jan Waheed Ullah & Shah Mahmood, 2019. "A Gravity Model Approach towards Pakistan’s Bilateral Trade with SAARC Countries," Comparative Economic Research, Sciendo, vol. 22(4), pages 23-38, December.
    • Handle: RePEc:vrs:coecre:v:22:y:2019:i:4:p:23-38:n:2
    DOI: 10.2478/cer-2019-0030
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    More about this item

    Keywords

    bilateral trade; common language; exchange rate; gravity model; population;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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