Pakistan’s export potential assessment at intensive and extensive margins

Abstract

Purpose This study aims to estimate Pakistan’s export potential in new and existing export products, as well as their potential destination markets. Design/methodology/approach This study uses a nonparametric approach based on demand, supply and easiness factors for estimating export potential at disaggregated product and destination levels. Findings A significant number of new export products (extensive margin) and existing products (intensive margin) are identified that have export potential. The estimated unrealized export potential at extensive margins is $2bn and at intensive margins is $5bn. The range of new products included value-added products, semifinished products and intermediate products. Surprisingly, there is high potential to diversify in China and export existing products more intensively in the EU. Moreover, the potential at extensive margins is regional diverse compared to intensive margins. Research limitations/implications The methodology used in this paper only provides export potential for short-to-medium term period because the global demand conditions are varying. Also, the mineral and resource-based products cannot be included in the analysis because their exports are heavily dependent on the availability of natural resources. Practical implications The findings have important policy implications in terms of providing guidelines for government policies related to industrial development, international trade and export promotion at the product and destination level. Overall, the study reveals that traditional sectors lack room for product diversification. As the existing export incentives favor major industries. To foster diversification, existing incentives must be redesigned to cover new products or sectors. Moreover, China has the greatest potential for product diversification, while Europe has the greatest potential to export current products more intensively. Further research is needed to simulate trade policy scenarios and estimate demand, supply and ease factors in export potential. Originality/value This study provides a unique perspective on export potential assessment at disaggregated product and destination levels, reinforcing the importance of redesigning trade policies and export incentives separately for export diversification.