Bilateral Trade of Pakistan and China, and the Comparative Advantage and Disadvantage between the Two Economies

Abstract

The swap over of goods among two countries that promotes venture and trade is referred to as bilateral trade (or two-way trade). To boost investment and trade, import quotas, tariffs, export constraints, and other trade barriers would be abridged or eradicated. As there are only two nations involved in bilateral agreement, it is quicker to negotiate, enter into force faster, and reap trade benefits sooner because both countries open their markets to one another, resulting in trade and economic growth. China is actively pursuing investment and bilateral trade agreements with countries who are not members of World Trade Organization. The China-Pakistan Free Trade Agreement (CPFTA) was supposed to run from 2007 to 2012, with the second phase starting in 2013. Phase I of the CPFTA went into effect in July 2007 and lasted through 2012. The CPFTA's Phase-II discussions have been ongoing since 2013, with a strong likelihood of completion in December 2018. In this research effort Pakistan and China's bilateral trade has been analyzed during a period spanning from 2001 to 2019. It was decided to use the well-known methodology of Fixed Effect based on Hausman test to meet study's goal. Study's initial goal is to look at the influence on bilateral trade of newly discovered comparative advantages and disadvantages. Depending upon findings, it can be further stated that findings of comparative advantage and disadvantage have a noteworthy affirmative and negative shock on bilateral trade respectively. Resultantly, annual growth rate of bilateral trade predicted by RCA is 71%, while the comparative disadvantage found by this analysis shows an actual annual decline of 1.23 percent.