Analysis of Factors Affecting Pakistan's National Competitive Advantage in Trade with India

Abstract

This work had tried to identify sources of competitive advantage for Pakistan in trade with India. Focusing five industries from both countries for the period 2005 to 2015. Industries include textile, Sugar and Sugar Confectionaries, Inorganic Chemicals, edible fruits,and nuts and Agriculture. A detailed literature review, Ratio analysis, and regression analysis were applied, to identify impediments to trade with India, future trade prospects, sources of competitive advantage for Pakistan, and assess the effects of granting of MFN status to India. The analysis identified many impediments to trade by India, like tariffs, quota, strict quality, non-tariff barriers, Visa policy, hindering trade between both countries. The intraregional trade share suggests a very costly future trade between both countries, intra-regional trade share suggested that the aggregate trade of Pakistan and India is not very significant in the world. The intraregional trade introversion index suggested that trade between both countries had an extra-regional bias suggesting trade diversion. The ratio of revealed comparative advantage suggested that Pakistani textile was not consistently competitive, but Inorganic chemical, Agriculture, Sugarand sugar confectionaries and Edible fruits and nuts industries were not competitive during the period under study. Whereas, textile and sugar and sugar confectionery were sustainable competitive but all the other Indian industries were not consistently competitive. The regression analysis suggests that government policy had significantly affected the national competitive advantage of Pakistan. Whereas for India, government policy and firm strategy and rivalry were significant. The research concludes that both Pakistan and India are facing the same problems regarding their factor conditions, demand condition, supporting and related industries. As compared to Pakistan, India is providing a better business environment and its relatively easy to conduct business in India. The governments of both countries are trying to liberalize trade and playing a positive role but the main hindrance is political and military interference in many issues. Both countries have the potential for future trade, but for that, they have to abolish their NTBs, tariffs and devise fairly liberal trade policies against each other.