Export-enhancing Effects of Free Trade Agreements in South Asia: Evidence from Pakistan

This article examines the effects of in-effect free trade agreements (FTA) on exports of Pakistan using the extended gravity model of bilateral trade flows. The effects of FTAs are measured by finding the differences between most-favoured nation (MFN) and preferential tariff rates (the tariff gap) as well as the zero-one binary dummy variable. Our systematic comparison of both the measures of an FTA suggests that the estimation based on the tariff gap is consistent with the observed changes in the trade pattern of Pakistan. Pakistan-China FTA (PCFTA) has the largest stimulating effect for Pakistan's exports, while the effects of other FTAs are much smaller and not much different from each other. The effects of FTAs on agricultural products tend to be higher than those of manufacturing ones, suggesting ability of firms in the former to better comply with imposed rules of origin (ROO) than the latter. At the one-digit Standard of International Trade Classification, the effect of FTAs is mixed across products and FTAs.