Product Space: Exploring Potential for Higher Exports in Pakistan

A persistent problem faced by Pakistan has been the balance of payments deficit. The merchandise exports have been considerably lower than the merchandise imports. Pakistan has not been able to move up the quality ladder which is why the exports have mostly remained in low value-added products exacerbating the balance of payment deficit problem. Comprehending the need for higher export generation, this paper employs the product space network and connectedness paradigm, provided by the Atlas of Economic Complexity (AEC), to explore and identify the potential high value-added primary connections that can expand and diversify the export basket of Pakistan in the future. Our analysis shows that products such as ‘coke etc of coal (HS 2704), railway or tramway freight cars (HS 8606), Malt (HS 1107), chemical woodpulp (HS 4703), unwrought nickel (HS 7502)’ can be added in the export basket whereas exports of the products such as ‘original sculptures (HS 9703), fishing rods, decoy birds (HS 9507), footwear (HS 6404), stranded wire, cables (HS 7413)’ can be expanded. We also estimated the potential gain in the export revenues if Pakistan starts exporting a subset of the products identified. Our estimations show that increasing exports of the primary connections not yet exported by Pakistan can improve the merchandise export revenue by 5.54%. Furthermore, if Pakistan starts expanding exports of high value-added products from the current export basket, the merchandise export revenue can increase by almost 27.7 % to USD 37 billion. With such potential gains in consideration, policy makers can focus on the products and sectors identified in this paper for an apt export-oriented industrial strategy and trade related policy. Trade and investment officers in foreign missions or the negotiators of trade agreements should be provided with these product lists and priority sectors so that they can link potential foreign buyers with Pakistani producers. These products can also be focused upon when decisions regarding the tariff reductions in the relevant inputs are being discussed.