Recent Trends and Prospects of Bilateral Trade between Pakistan and Turkey:

Pakistan’s economic ties with Turkey have improved in the past few years. A recently stated pledge to create a free trade agreement between Pakistan and Turkey is likely to trigger a further expansion of economic integration. This paper starts by reviewing trends in Pakistan’s bilateral trade with Turkey since 1996. Next, it estimates an augmented gravity model aiming to project Pakistan’s trade potential with Turkey and compare them with the actual flows in 19962009 period. We find that export flows from Pakistan to Turkey have grown sharply since 2001 outpacing both Turkish exports to Pakistan and projections generated by the augmented gravity model. The success of Pakistani exports is largely explained by the booming performance of textile industry in Pakistan. Turkey’s exports to Pakistan feature goods with greater added value although they still remain significantly below the model predictions. Trade complementarity analysis indicates that overall Turkish exports match better with Pakistan’s import structure than Pakistan’s exports with Turkish import structure. Given the results from the augmented gravity model and complementarity analysis it is likely that Turkey will benefit to a larger extent from the proposed free trade agreement.