Impact of Free Trade Agreement(FTA) on trade patterns of goods between Pakistan and China

Pakistan and China share long lasting cordial relationship. To extend this relationship a free trade agreement (FTA) was signed between the countries in 2006. The purpose of my study is to examine the impact of this FTA on patterns of goods traded especially from the point of view of Pakistan. Due to data limitations only observations from 2003-2010 have been included in the analysis which has been carried out using Before-After FTA analysis, Revealed Comparative Advantage (RCA) and Gravity Model. Before-After analysis reveals that the trade patterns have improved generally (Pakistan exports as well as imports from China have increased) but the trade deficit of Pakistan has also increased; the RCA analysis shows that there is a difference in goods traded by both countries in world markets and bilaterally except the top ranked products. The gravity model suggests that Pak-China FTA does not appear to affect the bilateral trade flow one way or another. The positive and statistically significant China’s GDP could have positive influence on Pakistan’s exports to China because bigger the China’s GDP, the greater China’s imports from Pakistan, and bigger its capacity to absorb imports. On the other hand, Pakistan’s GDP does not have much influence on its exports to China. Therefore in present conditions it is Pakistan which benefits more from the bilateral trade because Pakistan’s exports to China are positively correlated with China’s GDP which is growing faster than Pakistan’s GDP.

Thesis(Master)