Pakistan Institute of Development Economics

THE PAKISTAN DEVELOPMENT REVIEW 

A Gravity Approach to the Study of Pakistan’s Trade Potential

Expansion of east-west trade presents a great opportunity for Pakistan to increase its economic growth [Nabi (2013)]. There has been much interest in exploring the effect of trade liberalisation with India [Pakistan Business Council Report (2013)]. The recent China-Pakistan Economic Corridor (CPEC) project has also stimulated interest in the potential for the expansion of overland trade with China. Our research project examines the effect of barriers to Pakistan’s east-west trade, especially trade with China and India, and explores the potential for trade expansion from reduction in these barriers. To this end, we use an up-to-date version of the Gravity model which has had considerable empirical success in explaining bilateral trade flows and has strong theoretical foundations. To identify the trade effect of east-west barriers, we use a large data set to estimate a model that explains bilateral trade flows for most trading pairs in the world.

EHSAN CHOUDHRI, ANTONIO MARASCO, and IJAZ NABI

 

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