Determinants of Exports of Pakistan: A Country-wise Disaggregated Analysis.

Naseeb Zada, Malik Muhammad, Khan Bahadar


Given the importance of international trade and export
performance in economic growth, this study attempts to examine the
determinants of exports of Pakistan, using a time series data over the
period 1975-2008. A simultaneous equation approach is followed and the
demand and supply side equations are specified with appropriate
variables. This is a country-wise disaggregated analysis of Pakistan
versus its trade partners and the estimation strategy is based on two
approaches. First we employ the Generalised Methods of Moments (GMM),
which is followed by the Empirical Bayesian technique to get consistent
estimates. The GMM technique is believed to be efficient for time series
data provided the sample size is sufficiently large. In case of small
samples, the estimates might not be precise and might appear with
unbelievable sign and insignificant magnitudes. To avoid the sample bias
and other problems, we employ the Empirical Bayesian technique which
provides much precise estimates. The factual results obtained via the
GMM technique are a little bit mixed, although most of the coefficients
are found to be statistically significant and carry their expected
signs. In order to compare and validate these results, the Empirical
Bayesian technique is employed. This offers considerable improvement
over the previous results and all the variables are found to be highly
significant with correct sign across the countries concerned with the
exception of a few cases. The price and income elasticities in both the
demand and supply side equations carry their expected signs and
significant magnitudes for the trading partners. The findings suggest
that exports of Pakistan are much sensitive to changes in the world
demand and world prices. This establishes the importance of demand side
factors like world GDP, Real exchange rate, and world prices to
determine the exports of Pakistan. On the supply side, we find
relatively small price and income elasiticities. The results reveal that
demand for exports is relatively higher for countries in NAFTA, European
Union and Middle East regions. The study recommends particular
concentration on the trade partners in these regions to improve the
export performance of Pakistan. Keywords: Exports, GMM, Empirical
Bayesian Method, Pakistan

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