AN ANALYSIS OF ACTUAL AND POTENTIAL EXPORTS OF PAKISTAN WITH SAARC COUNTRIES: A PANEL DATA ANALYSIS

Abstract

Among the SAARC countries, India, Bangladesh and Sri Lanka had a share of 2.1 per cent, 1.4 per cent and 0.9 percent respectively, in the total exports of Pakistan. Therefore, it becomes imperative to study Pakistan's export potential in relation to SAARC countries. It was further recorded that all SAARC countries' trade including Pakistan is intense with one or two markets during the study period. Therefore, the present study aims at finding whether Pakistan has the potential to export to these nations by using gravity model. Pakistan's export potential to SAARC nations (Bangladesh, Bhutan, India, Maldives, Nepal and Sri Lanka) was calculated with the help of gravity model of exports using panel data methodology (pooled model, fixed effect model and random effect model) by employing the data over time period 1981-2005. To find out the convergence and divergence of Pakistan's exports to SAARC members, speed of convergence has been used. The study revealed that, there was presence of convergence in Pakistan's exports with SAARC countries; in other words, actual Pakistan's exports to SAARC countries converged towards the estimated export potential. The study also found that among SAARC countries, Pakistan's net export potential exists for Bhutan, India, Maldives and Nepal. Bhutan, Maldives and Nepal are not only far away from Pakistan but they do not have any common borders with Pakistan. Therefore, Pakistan needs facility for transit trade with Maldives, Nepal and Bhutan, through India to realized its export potential.