Economic & Cultural Distance & Regional Integration: Evidence from Gravity Model Using Disaggregated Data for Pakistan

Salahuddin , Javed Iqbal, Misbah Nosheen


This study applies generalised gravity models to analyse
Pakistan’s bilateral trade flows at commodity level using both panel as
well as cross-sectional data estimation techniques. The empirical
findings indicate that distance and size of the economy are the major
determinants of commodity trade flows. For many commodities, real
exchange rate, trade preferences, being landlocked, technological
differences and market size are vital factors, which boost bilateral
trade flows. Remarkably, there is an inverse relationship between
bilateral trade flows and a common border. As far as regional trading
blocs are concerned, the results show that ASEAN is a potentially
significant destination for Pakistan’s commodity trade. The findings
illustrate that in the case of SAARC trading partners, the potential of
trade has not materialised. For the purpose of robustness of our
results, we have also used agricultural and non-agriculture related
trade costs. Estimates indicate that trade costs between Pakistan and
its trading partners are highly significant and negatively related to
commodity trade flows, while other empirical findings confirm the
robustness of the results. Keywords: Gravity Model, Commodity, Regional
Integration, ASEAN, ECO, OIC, SAA

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