Effect of Trade Liberalization on Asymmetric Countries for Homogenous and Differentiate Product: Case of Pakistan-China Free Trade Agreement

Abstract

The study performs an empirical test to assess the impact of the Pakistan-China Free trade agreement (FTA) on Pakistan, China, and the World's exports under homogenous and differentiated products. This study employs the modeling with Poisson specification with Poisson Pseudo-Maximum Likelihood method for the estimations. The results of empirical test show that the effect of FTA on the FTA and Non-FTA countries is greater in the differentiated product as compared to the homogenous product. Therefore, one of the most important policy implications provided by this study is that export enterprises need to concentrate on differentiated products as compare to the homogenous products after the implementation of the Pakistan-China FTA. Moreover, the previous literature concluded that Pakistan-China FTA was more beneficial for China as compared to Pakistan. However, according to this study, if Pakistani enterprises focus more on differentiated products as compared to homogenous products, then it will be equally beneficial for both Chinese and Pakistani enterprises. This study will contribute to the literature by considering the Bertrand competition between asymmetric countries and find out the effect of the FTA on these three countries. It considers China, Pakistan, and the Rest of the World as first, second, and third countries.

Does a Free Trade Agreement’s Impact on the Export of Halal Food to OIC Countries Matter? Evidence from Indonesia

“…Two approaches commonly used to examine the impact of FTAs are gravity models (Abidin et al, 2013;Ahmed et al, 2021;Alam, 2015;Ali et al, 2020;Anderson & Yotov, 2016;Dianniar, 2013;Didia et al, 2015;Guan & Sheong, 2020;Hayakawa et al, 2016;Herath, 2014;Lopez, 2019;Mahabir et al, 2020;Urata & Okabe, 2007) and computable general equilibrium (CGE) models (Kartini & Margaret, 2020;Kustiari & Hermanto, 2017;Muchopa et al, 2020;Nekhay et al, 2020;Phat & Hanh, 2019;Rosyadi & Widodo, 2018;Tsutsumi et al, 2019). Bekkers & Rojas-Ramagosa (2018) compared these two models and found that they have distinct advantages while showing a certain degree of convergence in the literature.…”

Does revealed comparative advantage matter in the gravity of FTAs?

“…Some studies suggest that Pakistan–China FTA is equally beneficial for both Pakistan and China (Kataria and Naveed, 2014; Farrukh et al ., 2013; Junaid and Manzoor, 2017; Kataria and Naveed, 2014; Irshad et al ., 2016; Liu, 2010; Kabraji, 2012; Ahmed et al. , 2021a, b). According to Kataria and Naveed (2014), Pakistan is the first country located in South Asia that have a free trade agreement with China.…”