Assessing Pakistan's Textile Exports Under Trade Agreements

ABSTRACT Textiles serve as the export engine of Pakistan's economy, constituting roughly 60% of its total exports. Despite this prominence, Pakistan's global share in textile exports has consistently declined. In light of this, this study explores the potential impact of free trade agreements (FTAs) on fostering textile exports. The study applied a structural gravity model with the Poisson pseudo‐maximum likelihood (PPML) estimator to analyze annual exports for the period 2002–2021. Findings exhibit a positive and statistically significant effect of FTAs on textile exports, with varied impacts compared to major competitors. Moreover, we categorized textile products at the HS four‐digit level based on their value addition. Pakistan's FTAs facilitate the export of low‐ and medium‐value‐added textile products to Malaysia and South Asian countries, while exports of high‐value‐added products benefit from FTAs with China and Sri Lanka. The Pakistan–China FTA, in particular, stands out as highly effective. Regarding the European Union’s Generalized System of Preferences (EU‐GSP+), which is designed to leverage trade benefits, findings reveal a significant impact on textile exports across various value‐added categories. Overall, the lack of policy support for high‐value‐added exports contributes to the sector being mired in a low‐value‐added export trap.