Globalization and Gravity Model of Trade of Pakistan”- A PPML Estimator Analysis

Globalization has brought positive changes in GDP growth rate, international trade and wellbeing of societies around the world. However, Pakistan despite being an open and liberal economy is experiencing persistent decline in its exports since 2003. This study investigates the determining factors of Pakistan’s export using annual data ranging from 1993 to 2013. This study employs an advanced technique for panel data analysis “PPMLEstimator” which is more consistent with gravity model and addresses common issues associated with panel data. This study includes first time a new variable “Information Flow Index” (IFI) as proxy of Globalization; to arrest the impact of globalization. This variable not only improved the model specification but also reduced the negative impact of distances. Furthermore, the results reveal that findings are consistent with literature of basic gravity model and the negative impact of distance decreases over time in the case of Pakistan.