Abstract
The estimation of efficiency of industry-specific exports is very important to find exports’ gap and to frame exports promotion policy for targeted industry. This study attempts to investigate the main determinants of chemical products’ exports of Pakistan with 62 trading partners by applying Stochastic Frontier Analysis (SFA) on an augmented gravity model for a period 1995–2015. The results corroborate that chemical products’ exports follow gravity patterns. This study finds a negative and significant impact of import tariff on exports of chemical products while the positive impact of devaluation has been observed. Further, the estimations also take into account the impact of Preferential Trade Agreements (PTA), colonial links, common language, political disputes and contiguity by incorporating dummy variable for each variable and the expected positive effects are found except an insignificant effect of Contiguity. Further, the negative impact of political disputes is observed. The exports’ efficiency analyses reveal that Pakistan’s chemical exports are well below the optimal level and there exists a huge untapped exports’ potential with its neighboring, Middle Eastern and European countries.
Highlights
Pakistan has adopted trade liberalization policy in the early 1980s
The share of manufacturing exports was around 48% in 1980s and it has increased to 80% in 2015 [1]
To best of our knowledge, the estimation of the efficiency of chemical products’ exports of Pakistan applying Stochastic Frontier Gravity Model (SFGM) is missing in the literature and we may claim for an empirical contribution in two ways
Summary
Pakistan has adopted trade liberalization policy in the early 1980s. The export-led growth policy has brought a significant rise in exports from 2,364 million dollar in 1980s to 23,667 million dollars in 2015. The chemical sector is an emerging sector in the international market It is the third largest export sector of Pakistan after textile and agriculture sectors and second largest sector in the manufacturing exports. During 2011–15, chemical products’ exports have shown a declining trend with a single rise of year 2013 It should be a matter of concern for Pakistan whose economic growth largely depends on the external sector. The purview of the present study includes (i) to determine the most significant factors of chemical products’ bilateral exports applying Stochastic Frontier Analysis (SFA) on an augmented gravity model. To best of our knowledge, the estimation of the efficiency of chemical products’ exports of Pakistan applying Stochastic Frontier Gravity Model (SFGM) is missing in the literature and we may claim for an empirical contribution in two ways. Section-3 focuses on data, model and estimation strategy, section-4 illustrates the results and interpretations and section-5 concludes the findings of the study
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