Pakistans Trade Efficiency with its Free Trade Agreements, Preferential Trade Agreements, and Major Trading Partners

Abstract

Worldwide trade plays a significant part in encouraging Pakistan's economic growth and development. For further enhancing the trade, the concerned quarters or authorities have dynamically grown the number of free trade agreements with its trading nations. However, there are various reasons for the surge of RTAs/FTAs worldwide. In this study, we estimated the trade efficiency of Pakistan's exports and imports and its determinants. The stochastic gravity model was used with data from 13 countries starting from 1981 till 2018. The results suggest Pakistan's trade is much below its true potential. The trade efficiency of exports contributed more as compared to the trade efficiency of imports. The average trade efficiency of exports stands at 36% which is still lower than the potential. This implies that Pakistan needs to explore new markets and develop value-added products to achieve 100% efficiency. The average efficiency of imports of 20% reflects a lower contribution of trade within SAARC countries and others. The study further explores that reducing trade barriers and may lead to an increase in trade efficiency.