Globalization and Foreign Trade of Pakistan with D-8 Group

Abstract

Globalization has made the world smaller and flatter which is called “the death of distance”. This phenomenon has brought considerable increase in international trade in recent past. Many developing countries have been benefitted from the fruits of globalization and many other like Pakistan have lagged behind in the race. Pakistan is suffering persistently from trade deficit since 2003 and by the same point of time India, Sri Lanka and Bangladesh which share similar socio-economic conditions to Pakistan: are experiencing upward trend. This study investigates the popular theory “the gravity model of trade” in the context of Pakistan’s export flow to D-8 group. The gravity trade model has been innovated by introducing overall Globalization Index (GI) which led to improve explanatory power of gravity model. This research, in panel setting has used annual data ranging from 2003 to 2013, by employing advance estimation technique PPML, Estimator. The empirical results of the study infer that GDP, population and distance confirm the basic gravity model. While the globalization Index and contiguity variables are against the expected signs. Therfore, it is concluded that Pakistan need to explore new destinations specially should target the developing countries for its exports.