The Determinants Of Pakistan's Bilateral Trade And Trade Potential With Rest Of The World

The present study investigates the external sectors and determinants of Pakistan's foreign trade as well as discovering the trade potentials with rest of the world by employing structural gravity approach with zero trade and Multilateral Resistance Terms(MRT).A current study prepared balanced panel over the years(1992-2016)across 198 countries later which are divided into subgroups by regional trading blocs,geographical regions and countries respective to their income levels to get the maximum estimation results for each trading partner in case of Pakistan.While gazing at the internal and external performance of Pakistan study concludes that Pakistan is a country with profound dependence on foreign trade owing to the large volume of imports requisite to accomplish the mounting demands resulting from its economic revival and development.There have been structural and frequent changes in external sector of Pakistan.Internally there has been a mammoth rise in import demand owing to economic growth.Estimations from present study endow with substantiation on the faction in the pattern of Revealed a Comparative Advantage(RCA)for Pakistan's all external sectors and comparative analysis of selected countries.Pakistan has an upward trend in comparative advantage in textiles and clothing sector followed by leather manufactures and agriculture sectors.The RCA index for Pakistan is greater than other countries such as China,Indian and Bangladesh.This implies that Pakistan has the ability to reduce the trade deficit by improving his trade policy and to encourage the respective potential industries.Conversely,Pakistan has failed to move from low value-added unprofessional labour-intensive to technology-intensive high-value-added manufacturing.Pakistan still lags behind in export diversification.Nonlinear measurement of gravity model with PPML regression technique has become admired for modelling international trade flows since it approves a better accounting for zero flows and excessive values in distribution tail.In order to cope up endogeneity problem,the present study has estimated the gravity equations with time and country-specific effects;it will also help to control different other macroeconomic factors like global economics boom or recessions and country effects and also for MRT,Silva&Tenreyro(2006;2011).Augmented gravity outcomes have shown that GDP of Pakistan has shown the negative significant impact on exports and imports however joint GDPs positively increase total trade volume.Conversely,distance has found an inverse relationship with all trade flows.This implies if Pakistan trade with a distant partner then it has to bear huge trading cost while importing and exporting.Pakistan's large local population only strengthen local market and increase local consumption and supply which turn cause decline in export of Pakistan.Conversely,the market size of partner country appeared with a positive impact on imports from Pakistan which is highly appreciated for Pakistan.The available results support the H-O hypothesis(differences in factor endowments)in the case of Pakistan exports,imports and total trade thus being explained by low tech products for Pakistan's exports,medium and high tech products to fulfil domestic demands for imports.Pakistan generally has to face the crisis of instability in the exchange rate.Since last few years this problem has increased even worse.Along with several adverse effects of the budget deficit and inflation,the exchange rate is playing a fundamental role in increasing Pakistan's imports demand from partner countries.Meanwhile,most of the models ravelled positive relationship with trade flows of Pakistan with rest of the world.With regard trade openness study found immense potential in Pakistan and partner country in all estimation models with all trade flows.In case of the common trade,agreement study found mixed effects positive and negative due to instability and imbalance use of trade agreements.On the contrary,the study found a trade with non-costal countries decreases trade volumes.The final part of this study is to uncover potential markets for Pakistani exports,imports and total trade flows.Estimation results revealed that Pakistan owns satisfactory potential to enhance its exports with nearly 140 countries whereas,the highest export potential lies with countries India,Qatar,Japan,Iran,Saudi Arabia,Kuwait,Turkey,Brazil,France,Australia,Canada and Switzerland.Similarly,Pakistan has the potential for imports from nearly 110 countries,which are highest stands with Saudi Arabia,Malaysia,Iran,Kuwait,USA,Qatar,Australia,UK,Russia,Finland and South Korea.Likewise,Pakistan possesses sufficient potential to expand her bilateral trade with 98 countries and the highest share with Saudi Arabia,USA,Hong Kong,Iran,Malaysia,Qatar,Australia,South Korea,Switzerland,Bahrain,Bangladesh,Turkey and Sri Lanka.The study adopted same potential estimation methodology for countries classified by dissimilar groups.A wise gaze at the results revealed that there is significant scope for Pakistan to expand its trade with a number of country groups such as APEC,OECD and EU members followed by ASEAN,D-8,SAARC and ECO members,whereas NAFTA stands as lower trade potential.Whereas,in case of geographical regions,empirical estimations found highest trade potential stands with The Middle East&North Africa,East Asia and Pacific,Europe and Central Asia member countries followed by Sub-Saharan Africa,South Asia,Latin America and the Caribbean members likewise North America found as lowest potential trade flow in case of Pakistan's bilateral trade.Similarly,the study tries to capture trade potential for Pakistan if countries are categorized in different income levels,while the maximum trade potential exists with High-Income countries followed by Lower-Middle-Income countries,Upper-Middle-Income countries and Low-Income countries.The findings recommend Pakistan to spotlight and exploit the supremacy of trade as an engine for sustainable economic growth and stability.Through targeted technical assistance,exploring fresh markets,diversification in products the government should supports the improvement of trade-related policies,and helps to build the capacity of Pakistan's external sectors and institutions,and supports the implementation of trade-oriented industrial zones in some of Pakistan's most challenging environments.By Improve customs and trade facilitation to improve transit trade and enhance trade and transport facilitation.To improve trade policy and export promotion and enhance economic zones regime,focusing on areas of conflict and vulnerable populations;and promote small industries in foreign trade,through technological advancement and skilled labour will mainstreaming and dedicated capacity building.A process of reform via gradual reduction of import tariffs and convergence with international environmental and safety standards is recommended to enhance the competitiveness of external sectors.The situation is worse in Pakistan,with lower levels of exports and productivity,and with similar factors driving it.Trade policies,through tariff and non-tariff barriers,play an important role in shaping the external environment,which in turn influences a firm's incentive to become more productive.By reducing the time and cost of moving goods across Pakistan's borders,increasing formal cross-border trade,and promoting opportunities for infant industries in trade-related tax reductions,this development will accelerate Pakistan's trade-related capacity building and integration into the global economy.