Estimation of Import and Export Demand Functions Using Bilateral Trade Data

Abstract

We estimated the import and export elasticities of Pakistan trade with traditional trade partners and some Asian countries to see the dynamics of Pakistan's trade from 1973 to 2008. OLS results suggest that income is the principal determinant of exports and imports. Its exports are cointegrated with Japan and the US while the imports are cointegrated with UAE and the US. Pakistan imports and exports are cointegrated with Bangladesh and Sri Lanka but not with India and China. Income and exchange rate are both important determinants of foreign trade. Continuing its trade with traditional partners and making efforts for greater market access to the US and EU, it should make efforts to increase its trade with Asian countries notably China and India because both are fast growing economies and have huge market. JEL Classification: F01, C51.