ANALYSIS OF AGRICULTURAL TRADE BETWEEN PAKISTAN AND UNITED ARAB EMIRATES: AN APPLICATION OF GRAVITY MODEL

Abstract

This study was carried out at the Institute of Agricultural and Resource Economics, Faculty of Social Sciences, University of Agriculture, Faisalabad, Pakistan during 2012-2013. The objective was to analyze the major factors affecting the trade between Pakistan and United Arab Emirates (UAE). Impact of different variables was determined by the application of gravity model using panel data. Variables that were used are total trade, population, GDP, distance between trading partners and dummies for border and cultural similarities. Fixed effect model was selected for the time variant variables while random effects model was selected for time invariant variable using F-test, Housman specification test and Breusch-Pagan Lagrange multiplies test. The results showed that value of coefficient of GDP of Pakistan was 0.75 which was significant. The value of coefficient of GDP of UAE was 0.69 which was also significant. The coefficient of population of UAE was 0.63 which was significant. The estimated value of coefficient of population of Pakistan was - 1.24 by fixed effect model. The similar culture of Pakistan with its major trading partners have 1.27 percent more trade as compared to trading partners which have no cultural similarities with Pakistan. The joint border countries of Pakistan have 2.3 percent less agricultural trade as compared to the countries which have no joint border. Distance between trading partners has a negative impact on agricultural trade but this was not significant.