Strengthening Pakistan’s Trade Linkages: A Case Study of Regional Comprehensive Economic Partnership (RCEP)

This paper explores Pakistan’s trade potential because of Pakistan’s possible inclusion in the proposed Regional Comprehensive Economic Partnership (RCEP). Using a variety of analytical tools including the trade-cost augmented gravity model, indices of trade complementarity and revealed comparative advantage, the paper demonstrates that FTA between Pakistan and the proposed RCEP will increase bilateral trade, on average, by a factor of 1.84. Trade complementarity indices reveal that Pakistan’s import pattern tends to match over time with the export pattern of RCEP countries indicating that Pakistan can benefit from sourcing its imports from the RCEP countries. Moreover, there exists significant potential for Pakistan’s trade expansion with ASEAN members as well as other potential trading partners in RCEP. Whereas Pakistan can export cotton, made-up textiles and clothing, fish, cereals, leather products, pharmaceutical products, sugar and sugar confectionary, and light engineering manufactures, the proposed RCEP countries can export basic raw materials, machinery and equipment, steel products, and miscellaneous manufactured goods, to Pakistan. The study recommends that Pakistan should pursue its FTA arrangements actively with the ASEAN, as it is a prerequisite to get membership in the proposed RCEP. Greater integration with the proposed RCEP region will help Pakistan boost trade and investment and promote sustainable growth.