Abstract
Afghanistan and Pakistan are located at the junction of Central Asia and South Asia. Owing to geographical contiguity, common border, common culture and similar consumption patterns, bilateral trade between the two countries should have increased with the passage of time, in line with the assumptions of the Gravity Model of international trade. However, it has been observed that during the period 2012-2018, bilateral trade between the two countries has either stagnated or declined. There are various causes responsible for the declining trends in trade where this study uses both quantitative and qualitative evidences as primary and secondary data. The gravity model of trade was estimated by using random effect estimation technique for panel data set (secondary data). Furthermore, the trade potential was estimated which shows that Pak-Afghan trade is operating below potential level. For qualitative evidences, the input of the actual stakeholders (primary data) including traders, transporters, clearing agents and customs officials was taken and analyzed. The finding of the study shows that Pak-Afghan trade is operating below the potential level and is not in line with GMT. Similarly the non-tariff barriers (NTBs) for Pak-Afghan bilateral trade have resulted in trade diversion to Afghanistan’s trade with India, Iran and Uzbekistan.
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