Exploring the Gravity of Agricultural Trade in China–Pakistan Free Trade Agreement

Abstract

China and Pakistan signed a free trade agreement in 2006. In this study, the impact of the China–Pakistan Free Trade Agreement (CPFTA) on trade of agricultural products is explored by using the gravity model. Two Panel data sets, one for agricultural exports of China and one for agricultural exports of Pakistan were used. This contains data for agricultural exports and other macro-economic factors of China and Pakistan with 110 partner countries from 2001 to 2014. The Poisson Pseudo Maximum-Likelihood (PPML) technique of the gravity model was employed to analyze this data. The results suggest that CPFTA had a strong trade creation effect on agricultural exports of Pakistan. It helped provide an exponential increase in the agricultural exports of Pakistan to China. However, CPFTA was not found very effective for Chinese agricultural exports to Pakistan. This study contributes to the literature by determining the potential effects of the CPFTA on agricultural trade. Policy makers will find the results of this study useful because they point out impact of a bilateral trade agreement on trade of agricultural products.

Keywords:

• agricultural trade
• free trade agreements
• gravity model
• trade creation
• trade diversion

Notes

1 The website is https://www.wto.org/english/tratop_e/region_e/region_e.htm

2 http://comtrade.un.org

3 Exp(0.62) –1 = 0.85.

4 Exp(0.30) –1 = 0.34.