Pakistan China Free Trade Agreement on Trade deficit.

INTRODUCTION:
In 1980 H. Carey was the first economist who applied an idea of Newtonian physics namely
“gravity equation” which become famous in social science. Gravity model is derived from
physics and applied to international trade theory in order to explain the bilateral trade flow,
which are determined by two countries GDP as well as geographical factor such as mass
and distance. The topic of “Pakistan China Free Trade Agreement on trade deficit” is based
on framework of gravity model on bilateral trade. The gravity model is based on Newton
Philosophy i.e. law of attraction and is drive from physic theory, which explain the concept
that a flow is connected as the result of attraction between two objects.
When gravity model is considered, we take the idea of newton example of apple falling from
tree on the floor which he examined was due to some force which he names as gravity. On
the other hand, when bilateral trade is being discussed the term is considered as trade
between pair of countries in order to sort out the influence of geographical, cultural,
preferential trading policies in creating concentration in trade. The attraction among
countries on the basis on gravity model.

The gravity model on international trade was introduce by Tinbergen (1962) & Poyhonen
(1963) which explain the concept of ecometric studies of trade flow based on the gravity
equation i.e. related to international trade flow. According to his concept of Newton
Gravitational law bring the idea of measuring countries trade flow. Through his work he
had tried to explain the bilateral trade flow was between countries which have relation
dependenting on economic size & distance between those countries. Firstly, a general
model for export was specified and was bring into knowledge than many other economists
came up with different new theories and invention in bilateral trade on gravity model.
The word Gravity model on bilateral trade has different meaning combined with each other
as one word. When we a topic about gravity model on bilateral trade are discussed it mainly
consist of two different concepts with one idea that is gravity and other is trade.
According to Oguledo and Macphee (1994) the gravity model since 1940 has a wide range
of goods and factor of production and service moving from one place to another on level of
regional and national boundaries under different circumstance. Deardoff (1998) named the
model as fact of life because gravity model is concerned with human behavior.

In simple words when cities, countries and region or other things that have higher number
of people and are close together with similar choices are more likely to attract.
The masses of the countries are the sizes of their economies, from which a potential trade
flow results. The more sizably voluminous the economies of the pertinent countries, the
more immensely the trade among these countries will be. However, the mutual distance
causes a resistance to trade, due to factors such as of convey costs and times. Other factors
that boost trade are import tariffs, border controls and quantity restrictions. Such indirect
or artificial convey costs are not connected to distance, but to the simple fact that the goods
are conveyed from one country to another. In some cases, gravity model is an analysis with
international trade flow which is known as FDI. Foreign direct investment is concerned
with international direct investment depending on long term relationship & beneficial
influence on the firm management in a particular country.
The diagram below show complete gravity model.

Gravity model on trade is also represented with formula that is:

F ij = G * Mi * Mj / D ij

The explanation of formula represents G as a constant variable whereas F stand for trade
flow. Other alphabets like D stand for distance and M is showing economic dimension of the
country that are measured. Structural gravity embedded in models of resource allocation
across economic sectors has improved quantification of the consequences of globalization
for trade patterns, the location of economic activity and the development of economies over
time.

Anderson (1979), Bergstrand (1985, 1989, 1990) reported gravity equation as a consumer
expenses or expenditure equation with the prices in order to use general equilibrium
constraint concept as an important element. Linnemann (1966) reported the theory by
adding more variable to the theory and justify general equilibrium system.

Arkolakis, Costinot and Rodriguez-Clare (forthcoming) investigated that the same gravity
equation can come in various setting including or excluding hetegeneous firms.
The main objective of developing a working system for analyzing international trade flow
based on bilateral trade volume for department of trade and industry. As per the researcher
the traditional gravity model objective contains following three elements.
1. Economically effecting the trade flow in the exporting country
2. Economically effecting the trade flow in the importing country
3. Natural factor enhancing and effecting trade flow between trading partners.
The major variable of gravity equation are GNP and GDP of two countries their population
and the distance between them. It is based on economic sizes (often using GDP
measurement). The theory explain that trade is measured on gross sale basis while
considering GDP is measured on value added basis. Rauch (1999), Brun et al (2005),
Berthelon and Freund (2008), and Jacks et al (2008) also explain GDP concept. When we
talk about GNP & GDP it focusses on demand and supply side effecting trade.
Christie (2002) reported the concept as a trading connection between 2 countries is
proportional to product and services of each country economic mass generally measured
by GDP.
As per Isaac Newton’s theory it represents a reduction which comprises of supply and
demand element (GDP or GNP) population as well as geographical distance such as
transport cost and other trade factor.
Brun et al (2005) investigated GDP as price affection is also captured through real exchange
rates.
Other researcher like Helpman (1987), Deardorff (1995) investigated different and new
theories and concept of gravity model to justify the trade theories.It is one of the popular
equation successfully used in reference with international economic.
Frankel (1997) reported gravity equation has gone through the process of embarrassment
of poverty to embarrassment of riches.
Eichengreen and Irwin (1998, p.33) reported the model as “workhorse”. Workhorse model
was used in 2000. It is named as workhorse as it international trading ability correctly
approximate bilateral trade flow making a stable relationship in economics.

Eaton and Kortum (2002) explain a modern version of gravity equation of trade driven by
Ricardian comparative advantage.
It has been reported with different experiment and model by different researcher. One of
the model through which it can be explained are as under:
 1. The Ricardian model,
2. Heckscher–Ohlin–Samuelson (HOS)
3. Heckscher Ohlin.

The Ricardian model was introduced in 19th century by British economist David Ricardo. It
explains which assumes technological differences in determination of comparative
advantage which in turn decides the patterns of trade. Krugman and Obstfeld (1996) has
define the concept as “Comparative advantage of country in producing good if the
opportunity cost of producing that particular good is lower that other good in the country
than in other country”. According to this concept one factor of production or labor is
considered.

Heckscher–Ohlin–Samuelson (HOS) explain where trade patterns are determined due to

differences in factor supplies. It is also known as monopolistic competition model. Each
company differentiate their product slightly comparison with competitor’s similar
products.

Deardorff (1998) came up with H-O Model. Heckscher Ohlin model define general
equilibrium mathematical model of international trade, developed by Eli Heckscher and
Bertil Ohlin at the Stockholm School of Economics. The model consists of two factor i.e.
capital and labor. It is also referred as Factor Price Equalization theorem (FPE). It explains
with the time the factor price covers the relative price in both countries equally.

Nowadays the concept of gravity model on bilateral trade has become popular and one of
the hottest fashion trend according to many researchers. When the trade volume increases
the product economic size and decreases the physical geographical distance. It became
great success stories between among economist.

Literature review:
Fontagne et al. (2007) name the model as Border related cost that take place between two
countries on the basis of similar choices or some common interest.

Different researcher gave different concept. Gravity models assume that these bilateral
relationships can be modelled as a multiplicative function of the economic masses of two
economies (incomes, expenditures, or endow-ments), the inverse of economic distance
(trade costs, investment costs, or migration costs), and some constant, akin to Isaac
Newton’s law gravity. When a conservation of gravity model on bilateral trade is discuss
there are lots of countries comes in connection.

Kunimoto (1977); Vollrath, (1991) define the concept in detail by calculating each country
total import and export which divides the determinants of international trade into two
categories. One is the factor which influence the level of total import and export of the
countries around the world, and second is geographical distribution.
Drysdale and Garnaut (1982) reported by doing a survey and identified two approaches for
bilateral trade.
Bergstrand (1985) investigated gravity model as a foundation of micro economic frame
work highlighting general equilibrium model. According to him consumer is having
maximum CES preferences & profit maximizing function (CET) as production technology.
His concept explains a link between a production of import and export supply equation
which is combined with equilibrium condition that lead a reduction from equilibrium
quantities (export /import) and prices.
Bac Xuan Nguyen (2010) reported the utilization of gravity model for analyzing exporting
activities.

Frankel and Roomer (1999) investigated the impact of international trade on income by
using bilateral trade equation, which contained only geographical characteristics of
countries, disregarding economic ones.

According to Krugman (1991) and Magee (2003) explain the concept as the countries
which are developed have un natural trading partner because of their alike comparative
advantages, endowment and limited economic size and higher trade cost.
Feenstra et al. (2001) was first to introduce the dis aggregated data on the prediction with
the volume of export which is proportional with the volume of export which is connected to
GDP only in those countries where there is no barrier to entry.
Wall (1999) reported gravity model analysis are used to evaluate various trade policy
issues such as the effect of protection.

During 1970-90 Rose (2000) used bilateral trade concept for a panel of 186 countries for
finding small but statistically significant exchange rate.

The concept is based on two major elements.

1. Firstly, the transportation cost is counted.

2. Second the collinearity emerging if we use distance twice.

There is nothing new about trade but what create bilateral trade is the idea of trade
between two countries on some interest among countries like US and Canada, Pakistan &
China really matter.

For many research the definition has been given by comparing currency union which is
named as cooperate arrangement. In this process countries freeze their exchange rates at a
constant rate to reduce the uncertainty linked with volatile exchange rate.

Unfortunately, the estimation of trade diversion is not an easy work. The estimation has to
account into both trade and non-trade factors which influence RTA outcome, therefore, a
gravity equation is used to help this issue.

Historically, the Gravity model originated from Physics and it is ascribed as one of the prime
work of Newton. The model actually explains the force of the Gravity, which is directly
proportional to the masses of two objects and inversely related to the square of distance
between them [Rahman (2003).

The result of gravity model reveals the product of two countries where GDP has positive
and significant impact on bilateral trade infact 1% GDP lead to it. Researcher has reported
to concept of gravity model with trade that is the reason for countries to enter world trade
but trade flow is unknown second gravity model used to analyze pattern and performance
of international trade where quantity of trade flow is examined.

Bilateral trade is more clearly negotiated than multilateral trade because they involve only
two countries. When negotiations for a multilateral trade do not work out, many of the
nation’s bilateral trade instead take place. However, bilateral trade often triggers competing
challenge between other countries. This can take away the advantages the Free Trade (FTA)
confers between the pristine two nations.

In 1950 and 1960 bilateral trade between japan and United States was created. Where as in
2000 till 2010 bilateral trade activities between Vietnam and 60 countries took place.
Some researcher reported trade flow from one country to another as often measured as
free on board (FOB) which is considered as the value of shipment of goods delivered to put
on board as an international trading. The same trade flow often measured as CIF which is
term as cost insurance freight. This refers to value of same shipment at the airport
including cost of insurance and freight charges.
The Gravity Model of Trade is an important model in the arena of international economics.
It is like the other gravity models that are present in the domain of social sciences.
It makes predictions on the bilateral trade flows and these predictions are based on the
distance within two units as well as their respective economic dimensions.
According to Bergstrand (1985, 1989) investigation micro economic foundation on gravity
model is explain as a reduction of equation of general equilibrium between demand and
supply system. In simple word the equation of trade demand for each country is calculated
by maximizing a constant elasticity of substitution (CES) utility function reference to
income in importing countries. Secondly he explains the concept in other way the equation
of trade supply come from the organization profit maximization process in the exporting
country with the help pf resource determined by the constant elasticity of transformation
(CET) process.
Whereas Oguledo and Macphee (1994) reported total income determine the level of
demand in importing country and level of supply in exporting country.
Karemera et al. (1999) research the gravity model of trade flow is examined by valued
which is obtained under market equilibrium condition where supply for demand and
supply for trade flow are equal.
Some study by researcher reported gravity model is the effect of real exchange rate with the
uncertain condition of bilateral trade flow. There is various example of bilateral trade
agreement represented by researcher like Pakistan & china, Brazil & México, Latin America
& Australia. If we talk about gravity model with connection with bilateral trade it includes
trading concept import and export. Pakistan has highest trade potential with different
countries like Norway, China, Greece, Bangladesh etc.
Here bilateral trade is connected with trade with different countries especially china and
Pakistan. Gravity model on bilateral trade has a closer connection of trade between
Pakistan and china. Pakistan has always faced the problem of import than export.
Gravity model is a combination of volume of trade, capital flow and migration among the
countries of the world. Economic size and geographical distance 2 main element in
bilateral trade.
If talking about implementing bilateral trade in Pakistan, the gravity model finds trade
potential of Pakistan with its border sharing and other trading partners. Pakistan is trading
with more than 175 countries. It is important to enhance the volume of Pakistan export at
global and regional plat form. In this regard gravity model on bilateral trade place an
important role. Trade between Pakistan and china has always been very beneficial as their
interest are same and lead toward successful bilateral trade.

China Pakistan free trade agreement (FTA) was introduced in 2007 which was a new
experiment to boost bilateral trade. Many factor are involved in the growth of Pakistan
economic relation with china. Some of them are mentioned as under.

1. Poor innovation and technology infra structure.

2. Increased cost of export in terms of export.
3. Low labor productivity
4. Anti-export bias in taxation

Pakistan and china have long bounding relationship. They have developed strong trading
relation as Pakistan has always being poor with their economy system and to have
successful growth in business and economy Pakistan always need strong support like
financially and china has always been there. The relation starts since 1951 and is growing
with various investment of china in several Pakistani projects. According to latest research
in 2015 the bilateral trade between both countries had reached the % up to $ 9.3 billion.
Large number of chines companies are operative in Pakistan.
The excellent political and strategic partnership between Pakistan and China has
contributed in increased trade and economic cooperation, enhanced investment and
mutual economic prosperity. The socio-economic relations between Pakistan and China are
playing an important role to attain their mutual concerns for the economic development. In
future, strong Pakistan and China socio-economic relations will be beneficial to bring
sustainable regional prosperity and development. There is a lot of potential for trade
between Pakistan and China. China is continuously guiding Pakistan in increasing its
economic growth rate which double its GDP. It helps in playing a role of technical assistance
to Pakistan in policy and planning.
Ghulam Waheed, Ch. (1947-1966, p 54) reported relation between both countries as “Pivot
of Asia”.

Frankel and Romer (1999) reported gravity model as the impact of foreign trade on
lifestyle. This study focused on using the geographical factors to find the direction of
causation between income and trade. The results indicated that trade and income has
positive relation and within country trade increases through physical and human capital
formation and geographical factors. Anderson and Win coop (2003) justified the theoretical
foundation of gravity model. McCallum’s gravity equation was used to find the relation
between trade cost and benefits of trade both for inter-provincial and state provincial trade
by using pool data of about 30 states of US and Canada. The findings of the study indicated
that national boarders reduce trade between US and Canada in greater magnitude as
compared to with other states. Resoluteness of bilateral trade determinants and its impact
on economic magnification is the most debated topic among the economists. Gravity model
has been widely utilized in computing trade potential. In literature the direction of future
trade is through the difference of estimated gravity model trade flow and genuine trade
flows (trade potential). But mostly the studies are conducted to find the total trade
potential of a country with its trading partners. Trade consist of two components i.e. export
and import. Categorically for Pakistan few studies are conducted to find the total trade and
export potential with partner countries. Total trade flow of a country for a particular
market is quite different from export and import markets discretely. Picture of total trade
potential may be different from export and import potential. So that it is import to explore
this side of trade.

The objective of this study is to quantify Pakistan’s trade potential with its border sharing
and other trading partners. The objectives of this study are: to analyze the determinants of
total trade as well as export and import determinants of Pakistan, to find the role of friction
in Pakistan’s trade prospects, and to find Pakistan’s total trade, import and export potential
with its border sharing and other trading partners. The study will provide insight into the
trade direction of Pakistan with its neighboring countries and other trading partners.
Augmented gravity model is utilized to find the trade potential of Pakistan with its border
sharing and other trading partners with 38 countries from 2000 to 2013 at annual
frequency.
Many economists have different literature theory on trade and development and everyone
has explained the concept in different ways but the focus was on trade determined and
future possibilities of trade expansion in the country.
Lai and Zhu (2004) found the determinants of bilateral trade by using panel and cross-
sectional data of 34 countries by incorporating distance, average tariffs, time-varying
tariffs, labor productivity adjusted wages and total factor productivity-adjusted wages. The
results demonstrate that tariff liberalization is more beneficial for poor countries as
compared to rich countries and trade shifts from continental preferential trading areas to
intercontinental trading partners.
The gravity model used with high significance is the determinants of trade in instruction
including wealth of exporter & importer, domestic capacity of exporter & importer,
transport monetary value, green religion, common language and trade restrictiveness of the
importer.
Jakeb et al (2001) reported the gravity model on trade with monopolistic competition.
When we talk about monopolistic competition it is referred to market structure which
mean certain assumption regarding the structure of product and factor that market hold.
Many economists gave different concept and idea of gravity model on bilateral trade but
Tinbergen (1962), Poyhonen (1963) and Linnemann (1966) were the one to introduce the
concept with comparing Newton Gravity model to find trade relationship among countries.
The complete concept based on trade i.e. import and export. (GDP/GNP). This may include
transportation costs, geographical and cultural features, border & non-border barriers and
other regulatory constraints. If GNP is discussed the size effect trade in two ways.
Firstly, it shows the general volume of demand in country and second it is good proxy for
diversity of product in country.
There are not only advantages but there are main problems faced in analysis of bilateral
trade using the concept of gravity model. The major problem is multilateral trade and
policy measurement. The model of gravity working across most countries of world are
highly extensive in their coverage of factor & role become complicate in behavioral pattern
of trade decision making. The problem is it focus on trade but the cost of trading is almost
impossible to observe directly because there is other cost like transportation, enforcement
and distribution cost also involved. It may effect export through 3 different channel which
are as under:
1. Direct aid typing
2. Increase receipt income
3. Leading to increase import and decrease trade cost.
There are many other theories which also become a part of bilateral trade on gravity model
like Ricardian model, Noe classical model & New trade theories but all are connected with
across countries trade flow. According to economist it is one of the important model in the
international economics that is trade.
One of the famous economist Helpman (2011) investigated gravity model is based on three
major phases of development. Firstly, it consists of Classical or Neo Classical Trade Theory
(of comparative advantage) which explain the concept of foreign trade in early 19 th to 20
centuries. Secondly the phase he discussed in his investigation was introduced in 1980’s
named as New Trade Theory. This theory is based on the concept economies of scale and
monopolistic competition in trade model. If talking about monopolistic competition it is
compared with international trade. It is define as imperfect competition between many
firm and organization on similar products and services. Lastly the 3 rd phase was introduced
in 2000 which was name as New Trade Theory. It focuses on characteristic of individual
firm & their involvement in international trade.
Gravity model is used as a baseline model for determining of GDP, GNP, various policies
issues, trading group and exchange rate. It is also a great backbone for flow of remittance.
Gravity framework with bilateral trade alone support the remittance flow in a manner that
larger countries receive and send larger volume of remittance in currency rate or dollar.
The greater the distance between the two countries, the smaller the flow of remittances.
Poorer countries (in terms of per capita income) attract more remittance flows and a larger
volume of remittances is sent from richer host countries. Sharing a language is positively
associated with remittance flows, but sharing a border has either a negative or no
statistically significant impact. This may suggest that sharing a border facilitates
remittances through non official transfer channels, not captured in our remittance data. It is
also possible that migrants choose to hedge themselves (and their families) by moving to
countries where cycles are different from those at home—typically countries that do not
share a border with the home country.
State Bank of Pakistan (2005) reported gravity model at the sectoral level. They explain the
value of export is used as separate variable & various models are included to capture and
know the possibilities of common border, language, conflict and geographical location etc.
between the countries. For this they have set a data where 15 sector in year 2002 & 2003
has determine trade potential of Pakistan with selected trading potential.

Santos Silva and Tenreyro (2006) reported Gravity model as OLS (ordinary least square)
estimation. It is one of the technique used by researcher to examine the independent effect
of each factor. It constant for various factor in order to estimate the effect of another factor.
Batara A, (2004) use OLS regression technique for the year 2000 for bilateral trade of India
with 146 countries.
OLS regression is also connected with Zero trade flow.
Frankel (1997) reported gravity model as distance co efficient. He explains that the
coefficient measures are considered as relative unit transportation cost between short
distance and long distance rather than level of average transportation.

If experiment and data analysis has been done on gravity model on bilateral trade it is used
with different formula and variable and known as gravity variable consist of four groups.
Gravity model on bilateral trade is combination of these four group mentioned as under.
1. Distance
2. Common border
3. Cultural distance
4. Colonial ties
Distance: Glick and Rose’s (2002) reported as greater the distance between two countries
higher are the cost associated with transportation good.
Common Border: Many researchers have shown that the influence of distance on trade is
non-linear, with trade between bordering countries being significantly greater than
countries that are positioned at similar distances, but do not share a border.
Cultural Distance: The common example of cultural distance measurement is an indicator
of common language.
Colonial Ties: In this there are two measures of variable included in this.
Trade liberalization is the key element of economic in which IMF (International monetary
fund), World bank & World trade organization (WTO) are the main pillar in this regards.
Some researcher like Frankel and Romer (1999) reported the impact of international trade
on living standard.
Hirantha (2004) examined the progress of SAPTA and prospects for SAFTA by using gravity
model.
Martínez-Zarzoso and NowakLehmann (2004) used model in Mercosur-European Union
trade.
Rahman (2009) attempt to investigate trade potential in Australia.
Thai Tri Do (2006) applies bilateral trade flows between Vietnam and 23 European
countries from 1993 to 2004.
After looking at various researcher and economist concept it is assumed that gravity model
on bilateral trade is a combination of following research methodology.
1. Selecting a sampling of countries help reaching them trade potential where bilateral
trade between these countries act in a symmetric manner
2. It is an explanation of bilateral export with in a sample that is estimated on gravity
model
3. It is used to determine natural bilateral trade between two countries on the data on
distance, GDP, GNP and population.
4. It is based on export and import of countries
5. It includes five dti’s sectors textile, transport, chemical, mineral and agricultural.
Many economists have different definition concept on gravity model on bilateral trade.
Mátyás (1997) reported each country had two fixed effect import and export.
Reference:
Anderson, James, (1979), “The theoretical foundation for the gravity equation,” American
Economic Review 69, 106-116.

Anderson, J. E., & van Wincoop, E. (2003). Gravity with gravitas: A solution to the border
puzzle. The American Economic Review, 93(1), 170-192.
Arkolakis, Costas, ArnaudCostinotand AndresRodrÌguez-Clare. Forthcoming. “New Trade
Model, Same Old Gains? “American Economic Review

Brun, Jean-François, Céline Carrère, Patrick Guillaumont and Jaime de Melo (2005). "Has
Distance Died? Evidence from a Panel Gravity Model," World Bank Economic Review, vol.
19(1), pages 99-120.

Bergstrand, J.H 1985, “The Gravity Equation in International Trade: Some Microeconomic
Foundations and Empirical Evidence”, The Review of Economics and Statistics, Vol. 67: 474-
81. Harvard University Press.
Brun, Jean-Francois, Celine Carre`re, Patrick Guillaumont,and Jaime de Melo. 2005. ‘‘Has
Distance Died? Evi-dence from a Panel Gravity Model.’’World Bank Eco-monic Review19
(1): 99–120. A useful exploration of distance in gravity models.

Bergstrand J.H. 1989, “The Generalised Gravity Equation, Monopolistic Competition, and
the Factor Proportion Theory in International Trade”, Review of Economics and Statistics,
pp. 143-53.
Bergstrand, Jeffrey (1985),” The Gravity Equation in International Trade: Some
Microeconomic Foundations and Empirical Evidence,” Review of Economics and Statistics,
1985, 67:3, August, pp. 474-81.

Claudia M. Buch, Jörn Kleinert, and Farid Toubal, 2003, “The Distance Puzzle: On the
Interpretation of the Distance Coefficient in Gravity Equations”,Kiel Working Paper No.1159

Deardorff, AlanV.1998. ‘‘DeterminantsofBilateralTrade: Does Gravity Work in a Neoclassical

World?’’ In The Regionalization of the World Economy, edited by Jeffrey
Drysdale, Peter and Ross Garnaut, “Trade Intensities and the Analysis of Bilateral Trade
Flows in a Many-country World: A Survey,” Hitotsubashi Journal of Economics 22 (1982):62–
84.
16

Deardorff, A. 1998, “Determinants of Bilateral Trade: Does Gravity Work in a Classical

World?”, In Jeffrey Frankel (Ed), The Regionalization of the World Economy, Chicago:
University of Chicago Press.
Eichengreen, Barry and Irwin, Douglas A. “The Role of History in Bilateral Trade Flows,” in
Jeffrey A. Frankel, ed., The Regionalization of the World Economy. Chicago: University of
Chicago Press, 1998, pp. 33-57
Eaton, Jonathan, SamuelKortum, and SebastianSotelo. 2010. “International Trade: Linking
Micro and Macro,” University of Chicago,mimeo

Fontagn e,
́ L., Mayer, T. and Zignago, S. (2004) “Trade in the Triad: How Easy isthe Access to
Large Markets?”,CEPII Working Paper, No. 2004-04, April
Frankel, J. A., & Romer, D. (1999). Does trade causes economic growth? American Economic
Review, 89 (3), 379-399.
Frankel, J. A., & Romer, D. (1999). Does trade causes economic growth? American Economic
Review, 89 (3), 379-399.

Frankel (1997 Frankel, J. A. 1997. Regional trading blocks in the world trading system,
Washington DC: Institute for International Economics. [Google Scholar], 2

Feenstra, Robert. 2004. Advanced international trade: theory and evidence. Princeton, NJ:
Princeton University Press.

Ghulam, Waheed, Ch. (1947-1966). Pakistan Relations with India. Praeger. p: 54

Glick, Reuven and Andrew Rose (2002) “Does a Currency Union A ffect Trade? The Time
Series Evidence," European Economic Review 46(6), 1125-1151.
Hirantha, Wasam Seekkuwa (2004), “From SAPTA to SAFTA; Gravity Analysis of South Asian
Free Trade”, Nottingham University. (Available at
http://www.etsg.org/ETSG2004/Papers/hirantha.pdf).

International Economics – Theory and Policy by Krugman and Obstfeld (1996)

Jakab,Z.M. et. al 2001. ‘How Far Has Trade Integration Advanced?: An Analysis of the Actual
and Potential Trade of Three Central and Eastern European Countries’, Journal of
Comparative Economics 29: 276-292.

Krugman, Paul, (1991), Increasing Returns and Economic Geography, Journal of Political
Economy, 99(3), 483-99

Kunimoto, Kazutaka, “Typology of Trade Intensity Indices,” Hitotsubashi Journal of

Economics 17 (1977):15–32.

Karemera, D. et al. 1999, “A Gravity Model Analysis of the Benefits of Economic Integration
in the Pacific Rim”, Journal of Economic Integration, Vol. 14, issue 3, (September), pp. 347-
67.

Linnemann, Hans (1966) “An Econometric Study of International Trade Flows”, Amsterdam,
North Holland.

Lai, H., & Chun Zhu, S. (2004). The determinants of bilateral trade. Canadian Journal of
Economic, 37 (2), 459-483.

Linneman, H. (1966). An Econometric Study of International Trade Flows. Dissertation,

Netherlands School of Economics, Amsterdam.
Martínez-Zarzoso, I. & Nowak-Lehmann, D.F. (2004). MERCOSUR-European Union Trade:
How important is EU Trade Liberalisation for MERCOSUR's Exports?. In Center for
European, Governance and Economic Development Research Discussion Papers. (pp.30).
Göttingen , Germany: University of Göttingen, Department of Economics.

Magee, C. (2003), Endogenous preferential trade agreements: an empirical analysis,

Contributions to Economic Analysis and Policy
2 (1).

Oguledo, V.I. and Macphee, C.R. 1994, “Gravity Models: A Reformulation and an Application
to Discriminatory Trade Arrangements”, Applied Economics, Vol. 26; 107-120
Oguledo, V.I. and Macphee, C.R. (1994), “Gravity Models: A Reformulation and an
Application to Discriminatory Trade Arrangements”, Applied Economics, 26: 107-120

Poyhonen, Pentti (1963), “A Tentative Model for the Volume of Trade between Countries”,
Weltwirtschaftliches Archiv, 90:92-100.

Rose, A. K. (2000). One Money, One Market? The Effects of Common Currencies on
International Trade. Economic Policy, 15(30), 7-46

Rahman, Mohammad Mafizur (2003), “A Panel Data Analysis of Bangladesh’s Trade: The
Gravity Model Approach”. University of Sydney

State Bank of Pakistan. (2005).Special Section 7.5: Pakistan’s Export Potential: A Gravity
Model Analysis. In Annual Report 2004-05.Karachi: Author

Santos Silva, J., & Tenreyro, S. (2006). The log of gravity. Review of Economics and Statistics,
88, pp. 641–658.

Thai Tri Do (2006), A gravity model for trade between Vietnam and twenty-three European
countries. Department of Economics and Society, Dalarna University, Sweden.

Tinbergen, J. (1962), “Shaping the World Economy: Suggestions for an International

Economic Policy”, edited by Jan Tinbergen, New York, The Twentieth Century Fund
Vollrath, Thomas Lachlan, “A Theoretical Evaluation of Alternative Trade Intensity
Measures of Revealed Comparative Advantage,” Welt writs chaftliches Archive130
(1991):265– 79.

Wall J., Howard (1999) "Using the Gravity Model to Estim

ate the Costs of Protection."January/February Review of Federal Bank of Saint Louis.

Mátyás, László. “Proper Econometric Specification of the Gravity Model.” The World
Economy, May 1997, 20(3), pp. 363-68