Finding impact of Pakistan-China Free Trade Agreement (PCFTA) on agricultural exports of Pakistan- Gravity Model Approach

Abstract

China and Pakistan have years long history of friendly relations. Two countries decided to get fruit of these friendly relations for mutual economic development and cooperation in terms of trade relations by signing Pakistan-China free trade agreement (PCFTA) in 2006. Pakistan normally exports different agricultural products to China while imports high-tech products, chemical products and household appliances. Agriculture sector is backbone of Pakistan’s economy and a major source of employment and export earnings. Exports of Pakistan are highly concentrated in agricultural products like sugar, cotton, rice and fruits. This study contains ex post facto analysis of Pakistan-China free trade agreement (PCFTA) on agricultural exports of Pakistan using theoretically justified gravity model. Panel data set containing disaggregated trade data of 110 trade partners of Pakistan for the period dating from 2001 to 2014 analyzed using Poisson Pseudo Maximum-Likelihood (PPML) version of gravity model by using Stata software 14.0. Data on export of all agricultural products of Pakistan were collected from United Nations Commodity Trade Statistics (UN Comtrade) database while the data regarding different macro economic factors like GDP, Population, Exchange rate etc. was extracted from World Bank Development Indicators (WDI) database. Data regarding distance, common border, common language and colonial ties was obtained from website of Centre d'Etudes Prospectives et d'Informations Internationales. The results suggest that PCFTA has very strong trade creation effect on agricultural exports of Pakistan. It has helped in exponential increase in agricultural exports of Pakistan to China and paved the way to promote friendly relations of two countries for further economic cooperation.