Impact of Free Trade Agreements on Imports: Evidence from Pakistan
Keywords:
Free Trade Agreement, Pakistan Economy, ImportsAbstract
his study examines the impacts of in-effect Free Trade Agreements (FTAs) on the imports of Pakistan using the extended gravity model of bilateral trade flows. The effects of FTAs are measured by finding the difference between MFN and preferential tariff rates (the tariff gap) as well as the zero-one binary dummy variable. Poisson Pseudo-maximum-likelihood (PPML) and Negative Binomial (NB) models are employed to avoid possible bias and inconsistent estimators as a result of using OLS estimation. Findings indicate that among the six in-effect FTAs of Pakistan, only the FTAs with Malaysia (PMFTA) and China (PCFTA) have a positive impact on the manufacturing imports of Pakistan. For agricultural imports, PIPTA (an FTA with Iran) is the most important FTA for Pakistan. At the 1-digit SITC, the effect of FTAs is mixed across products and FTAs. Although this study focuses on Pakistan, the results tend to be relevant to other developing countries, including Thailand, which actively negotiates and signs FTAs. Conclusions are two-fold. First, relying on the dummy variable potentially misleads the impacts of FTAs on trade and second, all signed FTAs may not be beneficial to trade as expected. This would depend on the initial and preferential tariff rates granted, as well as rules of origin.
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