Free Trade Agreements and International Trade Flow of Pakistan: the Gravity Modelling Approach

This study explores the effect of regional and bilateral free trade agreements on international trade flow of Pakistan with respects to 47 global trading partners from 1980 to 2016 using log-linear panel generalized ordinary least technique on augmented gravity equations. The result of the standard gravity equation is consistent with the theory of the model. The findings of the augmented gravity models revealed that the SAFTA have a significant negative effect in both export flow and import flow indicating lower trade creation among regional countries. The findings of bilateral free trade agreements with China, Malaysia, and Indonesia revealed a significant positive effect on import flow; whereas, insignificant and/or negative effect is observed in exports flow. The FTA with Sri Lanka and the USA revealed the negative effect on import flow with a positive effect on bilateral export flow. Pakistan should revisit these free trade agreements and renegotiate for corresponding market access.