Gravity approach to the determinants of Pakistan's export: A panel analysis of the gravity model

Abstract

The purpose of this research is to identify various economic factor which effects Pakistan export. Over a 15-year period, from 2015 to 2019, a comprehensive data set was created and used to evaluate the panel gravity model of Pakistani export streams to a major trade partner. In the first stage a simple regression or OLS estimation is performed for the panel data. In the second step fixed effect model is tested and the last step we applied the random effect model. Then we estimate the Hausman test to choose the model between fixed effect and random effect. By utilizing the Hausman test it suggest us to choose the random effect model rather than fixed effect model. In the next step we performed one another test which is called LM test this test is used to choose between random effect model and OLS model. This test suggest us that random effect model is better than simple OLS. Data selected for the thesis is strongly balanced. The variable used to find its effect on Pakistan include, GDP of Pakistan and host country, distance between them, remoteness variable, GDP per capita of partner country, effect of SAARC on Pakistan exports. All the three model show that GDP and remoteness show positive and distance show negative effect, higher the GDP of exporting and trading partner higher will be the export, closer the distance from the exporting nation higher will be the trade between them. The variable of GDP per capita show negative while the SAARC show positive effect on Pakistan export.