Abstract
This study has investigated the Comparative Advantage (CA) of Pakistan’s exports over the period of 1995 to 2013. For measuring comparative advantage, Normalized Reveal Comparative Advantage (NRCA) index has been constructed in case of Pakistan’s exports. There are 17 sectors and more than two hundred commodities are used for measuring NRCA of Pakistan. In this study Agricultural Products (ArP), Food Items (Food), Fuels and Mining Products (FMP), Fuels Products (Fuel), Manufactured Products (MuP), Iron and Steel Products (ISP), Chemical Products (ChP), Machinery and transport equipment (MTE), Iron and Steel (IAS), Office and telecom equipment (OTE), Telecommunications equipment (TLE), Pharmaceuticals Products (PaP), Integrated circuits and electronic components (ICEC), Transport equipment (TrE), Automotive products (AutoP), Textiles (Text) and Clothing (Cloth) are the selected sectors for measuring NCRA in case of Pakistan. This study has also investigated the determinants of Normalized Revealed Comparative Advantage in case of Pakistan. The estimated overall exports NRCA is taken as dependent variable whereas EXC, FDI, TOT, OPEN and HC are selected as independent variables. For the solution of unit root problem in this study ADF unit root test is used. For examining the co-integration among the variables of the model ARDL bound testing approach to co-integration. The results of commodities groups show that Pakistan has enjoying normalized reveal comparative advantage in most of agricultural products sector whereas Pakistan has normalized reveal comparative disadvantage in industrial and technological products sector. But that normalized reveal comparative disadvantage is offset by the overall normalized reveal comparative advantage in Pakistan. The results show that there is negative and significant relationship between NRCA and EXC. FDI has insignificant and negative effects on NRCA whereas NRCA and HC has positive and significant relationship in case of Pakistan. In our estimated model the coefficient of OPEN has insignificant and positive relationship with NRCA in Pakistan. Overall results of the model show that rising EXC causes to decrease in NRCA while rising HC causes to increase in NRCA in case of Pakistan. So government of Pakistan should use normalized reveal comparative advantage for measuring comparative advantage, instead of traditional and outdated methods. For gaining and maintaining normalized reveal comparative advantage in agricultural products government should focus on serious policy issues which this study highlighted.