Gravity Analysis of Road-Trade Nexus: A Case Study of China-Pakistan Economic Corridor (CPEC)
Author: Hassan Mujtaba

Economic Corridors are a relatively new concept that was introduced by Asian Development Bank (ADB) while developing infrastructure, road and energy projects in the Greater Mekong Sub-region (GMS). An economic corridor is not merely a road/transport corridor, but additionally connects the supply with the demand in a particular area/region. China-Pakistan Economic Corridor (CPEC) is the China’s flagship project of One-Belt-One-Road (OBOR) comprising of long term investments in physical infrastructure, rail, road, energy, pipelines, electricity etc. A significant contribution of economic corridors is that they result in the creation of blocs and enhance regional economic integration. CPEC is also expected to create different blocs. The bloc between Pakistan & China is inevitable and at the same time, the author has constituted a hypothetical bloc comprising Pakistan, China, Iran, India, and Afghanistan. The main research problem of this dissertation is to analyze the impact of these two different blocs named CPEC (China-Pakistan) and CPEC_1 (Pakistan, China, India, Iran, and Afghanistan) on trade flows. For this purpose, the author has augmented a traditional gravity model and incorporated various other trade/economic variables. A panel data set ranging from 1981-2015 has been used and the results have been estimated through Ordinary Least Squares (OLS) and Fixed Effects (FE) regression. The results indicate that the creation of CPEC would result in an enhancing of trade flows by 120%. However, the creation of CPEC_1 would reduce trade flows by 55%. Terrorism, chaos, political instability, the political/Islamic insurgency in the western provinces of Pakistan are the main reasons for the latter figure and are the major impediments in the smooth execution of CPEC. It is only by dealing insurgents and miscreants through an iron fist that CPEC could really turn into a ‘game changer’ and be simultaneously beneficial for Pakistan’s neighbors as well. Supervisor:- Dr. Nasir Iqbal

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Keywords : China-Pakistan Economic Corridor (CPEC), Fixed Effects (FE), Gravity Model, Ordinary Least Square (OLS), Panel Data, Trade flows
Supervisor: Nasir Iqbal

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