# **5. Conclusions**

This paper analyzed different dimensions of the trade performance in Pakistan. While the poor aggregate performance is a well-known problem faced by the Pakistan economy, this note goes beyond it by exploring other dimensions such as the sophistication and quality of its export basket, diversification, and the survival rate of its export relationships. We make use of these analyses to shed light on the most binding constraints to improve export performance in the country.

In terms of orientation and growth, Pakistan is lagging behind the peer countries, as revealed by the trade-to-GDP ratio. The concern relies in the deterioration of Pakistan’s position between the 90s and 2000s. Furthermore, the export share over GDP shows a downward trend in the last years. A gravity model confirms that Pakistan is clearly under trading with emerging markets such as Brazil, India, Russia, Mexico, and principally with the neighboring India.

The analysis also showed that there are problems of quality/sophistication in the export basket of the country. The sophistication of Pakistan’s export basket is low and has increased at a very slow pace, mainly when compared to China and India. The product space analysis showed that there were 103 products with an RCA greater than 1 in both 1993 and 2008. These are mainly textiles and garment items such as linen, cotton, curtains, carpets, men’s coats, and leather clothing. Even worse, indications coming from the unit values of some of these products, suggest that Pakistan exporters may be facing difficulties to catch up with the quality upgrading taking place elsewhere in the world. Moreover, there is no Pakistani export (with RCA >1) firmly embedded in the denser part of the product space.

Regarding diversification, while still highly concentrated, Pakistan is showing positive signals both at products and market level. Even though the 65% of Pakistan’s export value is concentrated in the textiles, apparel, leather, footwear, the share of extractive industries, metals, machinery and electronics and some agricultural products is increasing. There is some evidence of services exports, with growing rates in the period 2000-2007 over 15% average per year. But the export value of services remains low well behind the peer countries. There has been an increase at the margin in exports to the emerging bloc of Brazil, Russia, and China (BRIC), also a good sign of diversification.

The key results of the descriptive analysis suggests that, like many other countries Pakistan posts a high concentration of exports in the hands of a limited number of large exporters. The dominance of few exporters has increased over time and it seems associated with low rates of product innovation and experimentation and a low ability of the Pakistani export sector to enter into new higher growth sectors, as evidenced by the breakdown of export growth by margins. The fact that firms tend to export only few products each may be a symptom of market distortions due to the dominant position of few firms. This hypothesis is also consistent with evidence that entry and exit rates are lower than in countries at a comparable level of development and that the overall extensive margin contribution to export growth is subdued.

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