DETERMINING THE TRADE POTENTIAL OF TRADE BETWEEN PAKISTAN AND SAFTA COUNTRIES USING GRAVITY MODEL

Abstract

The study tried to identify main determinants of exports between Pakistan and SAFTA countries by
applying the gravity model of trade. Panel data were used from the period 2003 to 2016. The
independent variables include GDP, GDP per capita, distance, border, and inflation to investigate
their impact on trade patterns. The Multiple Regression models were applied. The results suggested
the gravity model fits into data reasonably well and Pakistan's GDP, distance, and border showed a
significant negative relationship with trade patterns of SAFTA countries. Whereas inflation and per
capita GDP showed a significant positive relationship with trade patterns between Pakistan and
SAFTA countries. This work has tried to apply theoretical concepts and empirical analysis to add to
the limited literature already available. The results suggest significant potential in SAFTA regions for
Pakistan, which is still untapped. This suggested a development of liberal trade policies, decreasing
Non- tariff barriers to increase trade within the region.