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

Salahuddin , Javed Iqbal, Misbah Nosheen Nosheen

Abstract


This study applies generalised gravity models to analyse
Pakistan 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. In the case of many commodities,
real exchange rate, trade preferences, being landlocked, technological
differences and market size are the vital factors which boost up the
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
significant destination in term of trade potential for Pakistan’s
commodity trade. While, the findings illustrate that in the case of
SAARC trading partners, the potential of trade has not been
materialised. For the purpose of robustness of our results, we also have
used agricultural and non-agriculture related trade cost. The estimates
indicate that trade cost between Pakistan and its trading partner is
highly significant and negatively related to commodity trade flows,
whereas other empirical findings confirm the robustness of the results.
Keywords: Gravity Model, Commodity, Regional Integration, ASEAN, ECO,
OIC, SAA

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DOI: https://doi.org/10.30541/v59i1pp.79-110

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