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Beyond Normalization of Trade Ties - A Pakistan – India Free Trade Agreement (FTA): A Stochastic Frontier Gravity Model (SFGM) Approach

Kamal, Asmma (2016): Beyond Normalization of Trade Ties - A Pakistan – India Free Trade Agreement (FTA): A Stochastic Frontier Gravity Model (SFGM) Approach.

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Abstract

Several studies have estimated a large bilateral trade potential and have emphasized on normalization of trade ties between Pakistan and India, the two largest economics in the South Asian region. However, this paper explores the possibility of bilateral trade beyond MFN (Most-favoured Nation) basis and examines the potential of a deeper economic integration through a Free Trade Agreement (FTA) between Pakistan and India. In the above context, this paper employs the Stochastic Frontier Gravity Model (SFGM) to quantitatively measure the influence of “behind the border” constraints on achieving Pakistan’s maximum export potential towards India during 2013-15. Results confirm that Pakistan has a large unrealized export potential with India. They further indicate that the potential for an FTA appears to be significant, but contingent upon the effective reduction of “behind the border” constraints limiting Pakistan’s export potential.

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