DOES PAKISTAN CHINA FREE TRADE AGREEMENT ENDED UP IN TRADE CREATION OR DIVERSION? AN EMPERICAL INVESTIGATION

Abstract

This study investigates about Jacob Viner’s trade creation and diversion effect in “Pakistan-China Free Trade Agreement” Trade creation and diversion impacts are analyzed by constructing import demand equations both from China and rest of the world by using tariff concession as an independent variable in both equations. For estimation purpose “Harmonized System” data at two digit level is used for imports and tariffs from 2006 to 2012. Import demand equations have been estimated by employing panel data. Estimates of panel model suggest that Pakistan-China trade agreement is not trade diverting and imports from China increased significantly after one year of inception of agreement.