THE DETERMINANTS OF EXPORTS BETWEEN PAKISTAN AND ITS MAJOR TRADING PARTNERS: APPLYING THE GRAVITY MODEL APPROACH

This study seeks to identify relevant factors for Pakistan's bilateral exports within the framework of an augmented gravity model to analyze various determinants of Pakistan's exports to its fifteen major trading partners, which absorb almost 72.3% of Pakistan's total exports. Panel data from a thirteen-year period, covering the years 2003 to 2015, have been used. The aim of this study is to discover if the most common gravity model variables have similar effects on Pakistan's exports as they have for most of the advanced economies. The Hausman test reveals that the fixed effects model is the most appropriate model for our panel data analysis. Our estimated results show that the product of an exporting countries' GDP, exchange rate, foreign direct investment, SAARC membership and FTAs have significant positive impacts, while distance and terrorism have significant deleterious and negative impacts on Pakistan's exports. The study also found that an increase in the per capita GDP of an exporting partner has a negative effect and sharing a common language with an exporting partner has a positive, but statistically insignificant, impact on Pakistan's exports. The results of this study will be helpful to the Pakistani government in setting export policies.