The trade policy effect in international trade: Case of Pakistan

The debate on free trade and protectionism is ravaging in recent years. The industrialized countries are losing more and more market to the benefit of emerging countries. Liberals worry about new tariff barriers, while protectionists fear that unevenly distributed losses and gains will lead to significant economic dislocation of workers in import-competing industries. The economic policy of restricting imports and the economic policy of opening exports remain two critical measures of international trade. This study uses the gravity model to investigate the impacts of trade policy measures on trade flows between Pakistan and its dominant trading pattern for the period 2006 to 2015. The findings revealed the statistically significant correlation of trade policy variables on exports and imports. The study extended the analysis by examining four specificities groups of trade policy and continuing the analysis by estimating different country groups according to geographical or organizational clusters. The findings indicated that the specificities of trade policy have a statistically significant effect on exports and imports. Moreover, the signs of the coefficients are opposite in both models. The main political implication is that the proliferation of free trade agreements can have a positive impact on international trade.