Does revealed comparative advantage matter in the gravity of FTAs?

Abstract

Purpose – This study attempts to recognize the effects of the Pakistan–China free trade agreements (PCFTA) on promoting trade between the two economies. Design/methodology/approach – Following the concept of revealed comparative advantage (RCA) and free trade agreements, the study first identifies those commodities in which Pakistan and China have a robust RCA and then analyze the effect of PCFTA on the export value of those commodities for the bilateral trade between Pakistan and China. The study used the panel data in which more than the top 150 importers (j) have been selected for each case of Pakistan and China for the period of 2003–2015. Findings – The study concludes that even with the higher convergence rate, the good RCA does not guarantee a positive effect of the free trade agreement on the commodities. Originality/value – The study contributes to the existing literature by integrating RCA with the gravity model by adopting a sequential mode for Pakistan–China free trade agreement.

Keywords

• Trade liberalization
• Revealed comparative advantage
• Gravity model
• Pakistan–China free trade agreements