A study of gravity equation

Gravity equation ( GE ) foremost introduced in 19 1960ss as a strictly empirical survey to explicate bilateral trade flows, without any theoretical foundation but subsequently on GE was introduced through a series of theoretical work which demonstrated that the basic gravitation equation signifier was consistent with different theoretical accounts of trade flow. Practical applications of gravitation equation prolonged to cover a scope of issues, such as the impact of regional trade understandings, currency brotherhoods, national boundary lines on trade, and usage of the gravitation equation to screen out the comparative virtue of different trade theories ( Fratianni, 2007 ) .

As Greenwood ( 1975 ) noted that through empirical observation based surveies that have examined topographic point to put migration within this model have about universally adopted for appraisal intents a modified gravitation type theoretical account of gross migration.

Sanso, Cuairan and Sanz ( 1993 ) the gravitation equation has been successfully and often used for old ages to further apprehension of the determiners of bilateral trade flow across states, and later to analyse commercial policy steps. Its basic preparation was a log additive map upon a well defined set of variables. The explanatory variables are the incomes and populations of both states and the distance between the boundary lines.

Gravity theoretical account of trade in international economic sciences predicts the bilateral trade flows based on some variables, and theoretical account was foremost used by Isard in 1954. The gravitation theoretical account has been used extensively in empirical surveies of international economic sciences since the sixtiess. Harmonizing to the theoretical account, bilateral trade is determined by the wealth and size of states, the distance between the states, and other factors that distort trade. The theoretical foundations of the gravitation theoretical account are based on the theory of trade under imperfect competition and have late been integrated with the factor proportions and demand based theories of international trade ( Tamirisa, 1999 ) .

The gravitation equation has been long recognized for its consistent empirical success in explicating many different types of flows, such as migration, commutation, touristry, and trade good transportation. Typically, the log additive equation specifies that a flow from beginning I to destination J can be explained by the economic forces at the trade flow beginning, economic forces at the flow ‘s finish, and the economic forces either helping or defying the flow ‘s motion from beginning to the finish ( Bergstrand, 1985 ) .

Bilateral trade is the trade entirely between two provinces, trade barriers between parts may significantly cut down economic efficiency by curtailing trade. Extensive empirical surveies have been conducted on trade barriers across states, by and large happening those barriers big ( Anderson and Wincoop, 2004 ) .

SAARC states are low and in-between income developing states whose economic systems portion many similarities related to their geographics every bit good as the common facets of their civilization, history and economic and societal development. Given their high population degrees, by comparing with non merely the major industrial states but besides most states in Africa, Latin America and West Asia, the SAARC states have a comparative advantage in the production and international trade of many labour-intensive makers. Yet, trade dealingss of the SAARC states are besides shaped by political factors ; in many cases utilizing quantitative limitations and barriers to imports, these states hinder trade to protect favored domestic industries.

The aim was to explicate trade flows in footings of the gravitation equation, the ground for concentrating on gravitation was that, the GE, unlike other models, has had great empirical success in explicating bilateral trade flows and really utile in international trade. In its simplest signifier, the gravitation equation explains flows of a good between braces of states. In this survey, GDP, Transport cost, population, duty, exchange rate, rising prices and distance between the states are used as the independent variables and trade volume i.e. imports and exports volume as dependent variables, by utilizing multiple arrested development technique.

Chapter: 2

LITERATURE REVIEW

2.1 Exchange Rate:

Guedae, Sheldon and McCorriston ( 2002 ) analyzed that there is a negative consequence of exchange rate uncertainness on the agricultural trade, farther more the negative consequence of exchange rate volatility has been more important compared to other sectors and the most common averment has been that the hazard associated with this exchange rate volatility has reduced the degree of exports. Rose ( 2000 ) used bilateral trade for a panel of 186 states, over the period 1970-90, happening a little, but statistically important, negative consequence of exchange rate volatility on trade and suggested that the agricultural trade is particularly affected by medium- to long-term exchange rate uncertainness. The grounds reported here suggests that agricultural trade was more susceptible to interchange rate uncertainness than the aggregative trade informations would propose and that the negative effects on the growing of trade have a stronger consequence on trade in agricultural goods compared with other sectors.

As exchange rate variableness additions, therefore the value of existent options to export to the universe market additions. More volatility increases the likely additions from trade and it has been argued that the higher exchange rate uncertainness has lead to a lessening in international trade volume ( Broll and Eckwert, 1999 ) .

Higher exchange rate capriciousness leads to high costs for hazard alleging bargainers and to less foreign trade, if fluctuations in exchange rate becomes unpredictable, which besides creates uncertainness about the net incomes to be made and therefore reduces the benefits of international trade. Results refering the impact of exchange rate uncertainness on export flows suggest that there is a negative and statistically important long-term relationship between export flows and exchange rate variableness. In most of the states, exchange rate volatility has a short tally consequence on exports flow and has a substantial causal relationship in which alterations in exchange rate volatility causes alterations in existent exports.

Stockman ( 1985 ) examined how steady province rising prices affects the way and size of international trade. The effects of rising prices work through alterations in supplies of labour and capital. For certain rates of rising prices, the minor alterations can hold singular effects on the way of trade ; for other rates of rising prices, the volume of trade is affected. When money is held for minutess intents and factor supplies are endogenous, alterations in rising prices can do alterations in the form of trade. Depending upon income snap of demand for the two traded goods, and upon the initial form of trade, the volume of trade may lift or fall and the form of trade may be reversed by a alteration in the rate of rising prices.

If income snap of demand for goods one and two differ, or if the fringy public-service corporations of ingestion of goods one and two are affected unsymmetrically by a alteration in the ingestion of non-traded goods or leisure, so an addition in rising prices may cut down exports ( or increase imports ) of good two, even though the economic system increases its production of that good.

Inflation affects the form of international trade through its effects on factor supplies. The magnitude of the effects of rising prices on factor supplies depends on parametric quantities of both gustatory sensations and engineering: the same parametric quantities that determine the form of trade.

Stockman ( 1985 ) concluded altering forms of universe rising prices can do alterations in the form of international trade even in the absence of alterations in existent comparative advantage. At high ( low ) rising prices rates, the economic system produces merely the non traded good and labour intensive ( capital-intensive ) traded good. Small alterations in rising prices can hold dramatic effects on the form of trade. Even when the form of trade is non reversed in these instances, the volume of trade is affected by rising prices.

2.2 GROSS DOMESTIC PRODUCT:

The GDP of the exporting state is found to be a powerful explanatory variable in the comparative strength of bilateral trade dealingss ( Feenstra, Markusen and Rose, 2001 ) .

With respect to entire trade flows, merely the GDP of the exporting state ( a supply factor ) and the population of the importing state ( a demand factor ) have a important relation with the dependant variable that is trade ( Srivastava and Green, 1986 ) .

Srinivasan and Archana ( 1986 ) findings recommend that larger distances between the states cut down bilateral trade, and higher GDP and population of the trading states increase trade. A positive snap coefficient for population and GDP revealed that the size of the economic system is an of import influential factor in explicating the influx and escape of goods and services.

The traditional gravitation theoretical account says that bilateral trade is a map of two general factors, the size of each province ‘s economic system and a opposition term. The size of a province ‘s economic system is a placeholder for national income, bespeaking that one can merely buy, what one can afford. It is measured as a province ‘s Gross Domestic Product ( GDP ) , and is expected to be positive, more money means more imports.

World trade has grown much faster than universe GDP in recent decennaries, and a possible proof of this globalisation phenomenon that has been set Forth is one-sided trade liberalisation and the engagement in many-sided trading system undertaken by a figure of states and another one is the lessening in the trading costs, which includes transit and communicating costs. Harmonizing to Linder ‘s trade theoretical account, bilateral trade is greater when the per capita GDPs of the trading states are more similar.

Duty barriers in the importation states tend to hold a negative, albeit insignificant, consequence on exports. Per capita GDP and population, on the other manus, have important positive effects on bilateral exports ( Natalia, 1999 ) .

Early surveies on the determiners of trade focused chiefly on the relation between distance and trade. In general, it has been good established that distance is a strong determiner of the strength of trade flows that occur between states ; states that are geographically proximate tends to merchandise comparatively more than states that are farther apart.

Srivastava and Green ( 1986 ) concluded that the distance is the individual most of import determiner of trade strength among states of the variables that were employed in their research. Srivastave and green applied this determination to all the merchandise classs every bit good as to the entire trade class. Srivastava and Green ( 1986 ) identified several forces that go beyond simple GDP or distance in finding the trade ties that exist between states, particularly in the country of manufactured goods. In most instances distance accounted for lone half ( or less ) of the explained fluctuation in the strength of trade flows between states and in the add-on of other factors such as cultural similarity is needed for a more comprehensive apprehension of the strength of trade ties that exist between states.

Mark Gray observed that a state which boundary lines on ( or is geographically proximate to ) states holding big GDPs is more likely to hold a high proportions of its trade with those states than states with neighbours that are hapless. Trade is exchange, as the universe economic system grows in size, potency for good trade grows. Therefore, a general growing in GDP reinforces trade.

Prasad and Gable ( 1997 ) examined the economic significance of international trade for OECD industrial economic systems and suggested that the ratio of entire trade volumes to existent GDP is frequently used as an index of an economic system ‘s openness to international trade.

Production cost, duties, and distance-related barriers enter houses ‘ pricing and end product determinations. These determinations, when set against the background of CES penchants, give a precise bilateral trade gauging equation. Indeed, the theory even predicts the functional signifier for the dependance of bilateral trade on duties, distance and production costs ( Lai and Zhu, 2004 ) .

Some of the trade barriers like duty generate gross and others such as distance, bring forth productive activities like transit to get the better of such barriers and yet others, like bureaucratic holds and ordinances merely create trading operating expenses. It is good understood that the international trade flows can be good described by a ‘gravity equation ‘ in which bilateral trade flows are a log additive map of the incomes of and distance between merchandising spouses ( Copeland and Taylor 2001 ) .

2.3 PER CAPITA Income:

Thursby and Thursby ( 1987 ) observed that there is more trade between the states holding same per capita income.

Geographic distances from merchandising spouses cut down per capita income because distance creates barriers for international trade ( Huang, 2007 ) .

National uncertainness antipathy negatively affects per capita income by cut downing trade openness, peculiarly for geographically unfastened states ( Frankel and Romers, 1999 ) .

Trade form depends on the similarity of per capita income, and the degree of trade in manufactured goods between two states are reciprocally related to the differences in their per capita income, as predicted by Linder ( Kang, 2006 ) .

There is a considerable argument sing the part of remittals to economic development in developing states. The positive position speculations that remittances aid to better receivers ‘ criterion of life, promote families ‘ investing in instruction and health care. Remittances are besides necessary for funding imports, which is good for the balance of payment ( Le, 2008 ) .

Remittances play a major function in the development finance and in advancing economic growing. Over the past decennaries workers ‘ remittals have grown to go one of the chief beginnings of fiscal flow to developing states, it is inevitable that remittals have poverty alleviating and ingestion smoothing consequence on the receiver families. Remittances contributed a small to the economic growing in remittal receiving economic systems and may hold even slowed down growing in some ( Barajas, Gapen and Montie, 2009 ) .

Remittances help better receivers ‘ criterion of life, promote families ‘ investing in instruction and health care. Remittances are besides necessary for funding imports, which is good for the balance of payment. However, oppositions of remittals persist that remittals fuel rising prices and cut down inducements to work, which are evidently harmful for growing and the consequences suggest a strongly important and economically relevant consequence of alterations in trade, remittals, and degree of institutional quality on growing ( Le, 2008 ) .

2.4 Duty:

Duty barriers in the importation states tend to hold a negative, albeit insignificant, consequence on exports, Duty barriers in the importation states tend to hold a negative, albeit insignificant, consequence on exports, Empirical survey by Tamirisa ( 1999 ) found duty and capital controls lead to merchandise deformation. Duty has a important negative consequence on bilateral exports, in portion because of important trade cost, although the impact on imports is comparatively weak in the presence of duty barrier. Duty is one of the important factor of bilateral trade mediate states, state ‘ size wealth, exchange and capital controls, while duty rate significantly cut down exports.

Presence of trade barriers, such as duties, NTBs, and exchange controls, decrease the volume of trade. Duty barriers besides have a negative affect mediate trading states.

Some of proofs suggest that the grade to which non duty and duty barriers distort trade, while bilateral trade affects by duty charges which have a strong negative consequence on imports, and look to be more significant barriers to export ( Lee and Swagel, 1997 ) .

Trade deformations due to tariff and interchange control lowers the long-term growing rate more significantly in a state which requires importing more under a free trade government. When the duty rates are high plenty, the productiveness of public input diminishes ; therefore, higher duties ever lead to take down growing rates ( Lee, 1993 ) .

Lai and Zhu ( 2004 ) concluded that Tariffs and distance related barriers and production costs are of import factors impacting bilateral trade flows, duties cut down bilateral trade significantly. Reducing duty on imported input leads to a comparative enlargement of the tradable sector and hence, to a diminution in the comparative monetary value of the goods produced by that sector.

2.5 TRANSPORTATION Cost:

When the footings of trade are held changeless, an addition in transit costs affects trade flows by increasing the domestic comparative monetary value of the importable good, and therefore such an addition is said to hold an inexplicit duty consequence ( Casas and Choi 1985 ) .

Transportation system costs between states can present a formidable barrier to merchandise and likewise in consequence to duty and institutional restraints, Sampson and Yeats in 1978 found that conveyance costs to be a more important trade barrier for United Kingdom exports than duties ; Finger and Yeats come to similar decisions for U.S. imports. This suggests that the effects of alterations in international conveyance costs on trade is itself worthy of survey, and that international trade research which does non see transit factors may be based on misconceptions and may bring forth erroneous decisions ( Binkley and Harrer, 1981 ) .

Yeats ( 1977 ) has shown for the United States that effectual protection due to international trans- port costs is at least every bit high as that due to duties. The trade opposition factors include conveyance costs, discriminatory ( or preferential ) trade agreements, and non-quantifiable factors such as linguistic communication barriers, whether states are neighbours or non, and political considerations. Therefore, the usage of mere distance as a placeholder for conveyance costs may ensue in a serious underestimation of the sensitiveness of bilateral trade flows to transport cost.

The existent costs of trade ( the conveyance and other costs of making concern internationally ) are the of import determiners of a state ‘s ability to take part wholly in the universe economic system. As the liberalisation continues to diminish unreal trade barriers, the effectual rate of protection provided by conveyance cost is now, in many instances well higher than that provided by the duties.

Limao and Venablesn ( 2001 ) found that this snap is big, with a 10 percentage-point addition in conveyance costs typically cut downing trade volumes by about 20 per centum. One of import ground for this is that at high transit cost reduces net income.

There is a common belief that Africa trades excessively small, both with itself and with remainder of the universe, the hapless public presentation is typically attributed to protectionist trade policies ( Collier, 1995 ; Collier and Gunning, 1999 ) , and high conveyance costs due to hapless substructure and improper conveyance policies ( Amjadi, Reincke and Yeats 1996 ) .

Sampson and Yeats ( 1978 ) observed that the trade barriers posed by conveyance costs have been found to transcend those due to duties for both Australia and the United Kingdom accents the function cargo costs have in restricting international trade flows. The findings besides indicate the possible importance of steps to salvage conveyance costs as a stimulation to merchandise.

Finger and Yeats ( 1976 ) Transportation system costs tend to protect domestic manufacturers from foreign competition-as bashs such unreal barriers as import quotas, duties, etc. Overall the consequences indicate that, whether measured in footings of nominal or effectual rates, conveyance costs pose a barrier at least equal to post Kennedy Round duty in the United States. It seems likely that recent crude oil monetary value addition have important inauspicious effects on trade barriers originating from transit costs.

Harmonizing to Kweka ( 1999 ) recent surveies on the trade policies for low income states have established that higher transit costs associated with low quality substructure in states such as Tanzania represent as the barriers to merchandise and an added beginning of protection to local manufacturers of import viing goods. One account is that, the conveyance cost represents important loads that constrain export fight. High transit cost on imported goods expand the cuneus between domestic and international monetary values of imports beyond the import duties, thereby supplying extra beginning of protection to the domestic imports viing sectors.

In the instance of international trade, high conveyance cost may supply protection to import viing goods and bound export fight. High domestic conveyance costs ( from farm to the port ) and international conveyance costs ( from the port to the universe market ) lessening export fight and manufacturer net incomes. Measures to cut down the conveyance cost load on exports can significantly better export public presentation. The high conveyance costs associated with frequently unequal substructure add to dealing costs, making a barrier to merchandise and extra protection to the domestic manufacturers of import viing goods, transit cost represents an inexplicit revenue enhancement on exporters ( Kweka, 1999 ) .

Naude and Matthee ( 2007 ) found empirical grounds that states with lower conveyance costs have had faster manufactured export and overall economic growing during the last three decennaries than states with higher conveyance costs.

Relatively high conveyance costs in Africa are one ground for the continent ‘s comparatively slow growing in exports compared to other developing parts. There are at least five grounds why African states face high conveyance costs on their international trade: ( 1 ) distance, ( 2 ) being landlocked, ( 3 ) insufficient economic systems of graduated table in production, ( 4 ) deficiency of sufficient investing in conveyance substructure, and ( 5 ) trade and conveyance policies. Conveyance costs increases with distance, domestic conveyance costs negatively affect fabricating exports.

Chapter: 3

RESEARCH METHODS

3.1 METHOD OF DATA COLLECTION

Secondary informations is comprised on 21 observations for twelvemonth 2006-2008, collected from the different beginnings i.e. official web site of universe trade organisation ( WTO ) , International pecuniary fund ( IMF ) , CIA factbook files and official web sites of the SAARC states. The information is comprised on independent variables:

Gross Domestic Product ( GDP ) ,

Duty,

Distance,

Population,

Conveyance cost,

Exchange rate and

Inflation

The dependent variables are the import volume and export volume.

3.2 HYPOTHESIS DEVELOPMENT

H1: There is a positive relationship between Transportation cost and export volume.

H2: There is a negative relationship between Exchange rate and Export volume.

H3: There is a negative relationship between Distance and Export volume.

H4: There is a positive relationship between GDP and import volume.

H5: There is a positive relationship between Inflation and import volume.

3.3 RERESRCH MODEL DEVELOPED:

Following theoretical account was determined the impact of different variables on the trade volume and to prove the hypothesis that the variables that impact on trade volume were studied in this thesis, like: conveyance cost, rising prices, exchange rate, GDP, population, Tariff and distance by utilizing multiple additive arrested development.

Import Volume and Export Volume = I± + I? ( Gdp ) + I? ( Tariff ) + I? ( Distance ) + I? ( Population ) + ( Transport Cost ) + ( Exchange Rate ) + ( Inflation ) + A«

Where Secondary information was taken comprised on 21 observations for twelvemonth 2006-2008, collected from the different beginnings i.e. official web site of universe trade organisation ( WTO ) , International pecuniary fund ( IMF ) , CIA Factbook files and official web sites of the SAARC states. The information is comprised on independent variables:

Gross Domestic Product ( GDP ) and the coefficients I± and I? are arrested development parametric quantities for the independent variable and A« denotes the error term. Same theoretical account was used by Guedae, Sheldon, and McCorriston ( 2002 ) , Eichengreen and Irwin ( 1995 ) , Broll and Eckwert ( 1999 ) , Feenstra, Markusen and Rose 2001 ) for analyzing the impact of different variable on International trade.

3.4 Statistical TECHINIQUE:

After roll uping the information from the selected population, it was analyzed by utilizing SPSS package to mensurate the impact of alteration in independent variables on the dependent variables.

Statistical technique “ Multiple Linear Arrested development ” was used to place the variables that impact on bilateral trade volume i.e. Import and export volume.

Chapter: 4

Consequence

4.1 FINDINGS AND INTERPRETATION OF THE RESULT:

Using the multiple arrested development analysis through SPPS package by utilizing the stepwise method, which is extremely recommended for this type of analysis. Following consequences appeared:

Table 4.1: MODEL SUMMARY FOR EXPORT

Model

Roentgen

R Square

Adjusted R Square

Std. Mistake of the Estimate

1

.812 ( a )

.659

.637

1.98734

2

.903 ( B )

.816

.791

1.50908

3

.971 ( degree Celsius )

.943

.931

.86844

a Forecasters: ( Constant ) , TransExp

B Forecasters: ( Constant ) , TransExp, ExRate

hundred Forecasters: ( Constant ) , TransExp, ExRate, DISTANCE

vitamin D Dependent Variable: Exports

Above tabular array show per centum alteration in the dependant variable due to alter in independent variables. It shows that 65.9 % alteration in dependant variable ( Export volume ) is due to independent variables which are Transportation cost, Exchange rate and Distance. Transportation system cost has negative impact on export volume because the important value was less than.05, it means the Hypothesis is rejected and consequence is important.

Second per centum alterations in dependant variable due to taken independent variables shows that 81.6 % . Exchange rate has negative impact on exports because the important value was less than.05, it means the Hypothesis is rejected and consequence is important.

Third per centum alteration in dependant variable due to taken independent variables it shows that 94.3 % . Distance has negative impact on exports because the important value is less than.05, its means the Hypothesis is rejected and the consequence is important.

Table 4.2: MODEL SUMMARY FOR IMPORT

Model

Roentgen

R Square

Adjusted R Square

Std. Mistake of the Estimate

1

.902 ( a )

.814

.803

1.61008

2

.929 ( B )

.863

.845

1.42633

a Forecasters: ( Constant ) , GDP

B Forecasters: ( Constant ) , GDP, Inflation

hundred Dependent Variable: Imports

Above tabular array shows per centum alteration in the dependant variable due to alter in independent variables. It shows that 81 % alteration in dependant variable ( Import volume ) is due to independent variables which are GDP and Inflation.

GDP has positive impact on import volume because important value is less than.05, it means the Hypothesis is rejected and the consequence is important.

Second per centum alterations in dependant variable due to taken independent variables shows that 86.3 % . Inflation has negative impact on imports because the important value is less than.05, it means the Hypothesis is rejected and the consequence is important.

Table 4.3: Analysis of variance FOR EXPORT

The tabular array shows that there is no relationship among the Export volume, Inflation, Tariff, population and GDP because its important value is less than.05.

Table 4.4: Analysis of variance FOR IMPORT

The tabular array shows that there is no relationship among the Import volume, exchange rate, duty, distance and population because its important value is less than.05

Table 4.5: Coefficient FOR EXPORT

EQUATION 1:

Exports = -29.457 + 1.384*Transport cost – 2.316*

Exchange rate+ 4.211*Distance + Iµit

Where Exports is the dependent variable, I? is the changeless term and the independent variables include Transport cost, exchange rate and Distance, Iµit is the error term. If exports change by 1 unit so conveyance cost besides increase by 1.834, exchange rate lessenings by 2.316 and distance additions by 4.211.

Table 4.6: Coefficient FOR IMPORT

Model

Unstandardized Coefficients

Standardized Coefficients

Thymine

Sig.

Bacillus

Std. Mistake

1.Constant

GDP

4.195

1.225

0.590

0.146

0.902

5.010

8.373

0.000

0.000

2. ( Changeless )

GDP

Inflation

0.227

1.185

2.295

1.980

0.131

0.989

0.873

0.22.

-0.115

9.071

2.321

0.910

0.000

0.035

Dependent Variable: Import

EQUATION 2:

Imports = – .227 + 1.185*GDP + 2.295*Inflation + Iµit

Where Imports is the dependent variable, I? is the changeless term and the independent variables include GDP and Inflation, Iµit is the error term.

If Imports change by 1 unit so GDP addition by 1.185 and rising prices additions by 2.295.

Table 4.7: HYPOTHESES ASSESMENT SUMMARY

Hypothesis

R Square

Coefficients

SIGNIF:

EMPRICAL

& lt ; .05

Decision

H1: There is a positive relationship between Transportation cost and export volume.

0.659

1.384

0

Significant

H2: There is a negative relationship between Exchange rate and Export volume.

0.816

-2.316

0

Significant

H3: There is a negative relationship between Distance and Export volume.

0.943

4.211

0

Significant

H4: There is a positive relationship between GDP and import volume.

0.814

1.185

0

Significant

H5: There is a positive relationship between Inflation and import volume.

0.863

2.295

0.035

Significant

Chapter: 5

DISCUSSION, IMPLICATION, FUTURE RESEARCH AND CONCLUSIONS

This thesis shows how the bilateral trade volume in the SAARC states varies due to different variables, the chief aim of this research survey was to place the barriers to bilateral trade in SAARC states, the information consists of three old ages that is from 2006-2008. Gross Domestic Product ( GDP ) , Tariff, Distance, Population, Transport cost, Exchange rate and Inflation is tested to foretell their affect on dependent variable. With the aid of gravitation theoretical account arrested development is applied. The tool used for the analysis and reading of informations is SPSS.

SAARC states are low and in-between income developing states whose economic systems portion many similarities related to their geographics every bit good as the common facets of their civilization, history and economic and societal development. This research may assist to better trade installations and trade dealingss and enhance trade volumes.

Though, all variables were considered to be in line with the literature, nevertheless, based on arrested development coefficients shown by many variables along with dependence job, the concluding theoretical account comprised of independent variables that is Transportation cost, GDP, Inflation, exchange rate and distance holding important value less than 0.05 which suggests that these variables have important impact on the bilateral trade in SAARC states. On the other manus, consequences reveal that Duty and Population have important value greater than 0.05 therefore it may non needfully take to an impact on bilateral trade in SAARC states.