Trade Integration in South Asia and Export Performance of Pakistan: What Does the Gravity Model Tell Us?

This study examines trade integration in South Asia and the export performance of Pakistan. Using a panel dataset of Pakistan's exports to SAARC countries, gravity models have been estimated with the Poisson Pseudo Maximum Likelihood (PPML) technique covering the period from 1990 to 2023 to identify the main barriers in the way of regional integration. Our findings suggest that economic size, common language, infrastructure, trade freedom index, and institutional quality support regional integration in South Asia. However, common borders serve as barriers for regional integration, while SAFTA could not, unfortunately, yield the desired results. The possible reasons for low integration in the region include military engagements and restricted regional trade policies. The findings suggest that Pakistan’s intra-regional trade remains limited due to border issues, trade restrictions, sensitive lists, lengthy procedures, and inappropriate application of non-tariff measures. Hence, it is suggested that Pakistan should provide export facilitation and adopt more liberal policies towards South Asian countries. Particularly, some bold initiatives are required on the policy part towards India for deep intra-regional integration. The findings of this study have important implications for policymakers seeking to enhance Pakistan's export performance and deepen regional trade integration in South Asia.