Pakistan's agricultural exports, determinants and its potential: an application of stochastic frontier gravity model

ABSTRACT

The most important and imperative objective of the developing nations is rapid economic growth and exports are generally considered as an engine for economic growth. Being an agro-based economy, agriculture exports play pivotal role not only in economic growth but also in socioeconomic uplifting. This study aims at evaluating main determinants of agricultural exports of Pakistan by applying stochastic frontier gravity model over the period of 1995–2014 for a sample of 63 countries. In addition, the study also analyzes whether there is any untapped export potential between Pakistan and the trading partners in agriculture sector. The results confirm the consistency of gravity model for agriculture exports of Pakistan. Likewise, the estimates also point out that bilateral exchange as well as tariff rates also effect agriculture exports. The study has also incorporated the effect of common border, common culture, colonial history and preferential trading agreements by including their respective dummies. The study confirms the significance of each factor, except common language, with their respective magnitude. Moreover, technical efficiency estimates reveal that Pakistan has great export potential with neighboring, Middle Eastern and European countries.

KEYWORDS:

• Agriculture exports
• gravity model
• stochastic frontier model
• export potential

JEL CLASSIFICATIONS:

• F10
• F11
• F14

Acknowledgement

We are thankful to editor and two anonymous referees of this journal. Their detailed comments and discussions helped a lot to improve the initial version of this paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The trade and GDP figures are obtained from online database of World Trade Organization (WTO), http://stat.wto.org/StatisticalProgram/WSDBViewData.aspx?Language=E on November 11, 2015.

2. See World Development Indicators (WDI) 2014.

3. Multilateral resistance factors include tariff rate trade agreements, common language, common colonial base, remoteness and adjacency (see Baier and Bergstrand 2009).

4. A list of Pakistan's preferential trading agreements have been presented in Appendix2.

5. For further details see (Egger et al. 2011; Natale, Borrello, and Motova 2015).

6. “Gravity is an expenditure function allocating nominal GDP into nominal imports; therefore, inappropriate deflation probably creates biases via spurious correlations”. UNCTAD-WTO a practical guide to trade policy analysis. For further details see “Price Indices are also captured by MR term” a gravity model of international trade: a user guide.