DETERMINANTS OF PAKISTAN’S BILATERAL TRADE WITH MAJOR TRADING PARTNERS: AN APPLICATION OF HECKSCHER-OHLIN MODEL AND TINBERGEN GRAVITY MODEL

Abstract

This paper applies Heckscher-Ohlin and gravity model to examine the bilateral trade performance of Pakistan with other selected countries including China, Bangladesh, India, Iran, United Arab Emirates, Algeria, Saudi Arabia, Malaysia, Sri Lanka, Thailand, United Kingdom and United States. The size of economies, Distance, and scale reveal that these nations have great geographical, economic importance. The Study has used panel data on trade with other core variables i.e., land endowment, capital endowment, labor endowment, population scale, GDP distance and Remoteness over the period 2002 to 2019. The results divulge an enormous effect of Bilateral trade in case of Pakistan with other partner countries. ARDL results illustrate that there is significant upshot of remoteness with trade due to having substantial marketing network among these nations. Similarly, GDP distance and land endowment along with capital, labor endowment have also favorable effectiveness on trade and these variables demonstrate positive and significant effect on the volume of trade. While population scale has an adverse effect on the volume of trade. Study concludes that it is necessary to focus more on human capital as well as on physical capital for constructing a large framework globally to enhance the international trade volume. Though the policy of spending more on human capital, by offering incentives to Pakistani people to involve in trade activities as well as focusing more on the free trade agreement between the partner countries can be fruitful for enriching the trade pattern among these nations.