Product Space: Exploring potential for higher exports in Pakistan

Pakistan has long struggled with a persistent balance of payments deficit, primarily due to merchandise exports being significantly lower than imports. This issue is exacerbated by the country’s inability to move up the quality ladder leaving its exports concentrated in low value-added products exacerbating the balance of payment deficit problem. Recognizing the critical need to expand and diversify its export base, this study utilizes the product space network and connectedness framework from the Atlas of Economic Complexity (AEC) to identify potential high value-added products for export growth. The analysis suggests adding products like coke from coal (HS 2704), railway freight cars (HS 8606), Malt (HS 1107), chemical wood pulp (HS 4703), unwrought nickel (HS 7502) to Pakistan’s export basket. Expanding exports of existing products such as original sculptures (HS 9703), fishing rods, decoy birds (HS 9507), footwear (HS 6404), stranded wire, cables (HS 7413)’ is also recommended. We also estimated the potential gain in the export revenues if Pakistan starts exporting a subset of the products identified. Our estimates indicate that exporting new primary connections could increase merchandise export revenue by 5.54%, while expanding high value-added products could boost revenues by nearly 27.7 % to US$ 37 billion. Policymakers should focus on these products for an export-oriented industrial strategy. Trade officers and negotiators should link potential foreign buyers with Pakistani producers to capitalize on these opportunities. Prioritizing these products in trade agreements and tariff discussions can also support export growth, helping to address Pakistan's balance of payments deficit and foster sustainable economic development.