Abstract. The paper critically analyzes Pakistan's trade policy during 1996-2006 and explores the determinants of bilateral export and import flows between Pakistan and selected Asian countries (SAC) in recent past. It contains the policy issues which may be helpful for policy makers of other developing countries facing same conditions. A gravity model of international trade is empirically tested with the help of generalized least square (GLS) method of estimation in panel data. Our results show that the income of trading countries is a determining factor of Pakistan's import flows but not for export flows. For exports, the openness of economies is playing central role instead the incomes of trading countries. The exchange rate is also found as a determining factor of Pakistan's export flows and import flows. There is convincing evidence that current import and export flows are highly correlated with previous year whereas infrastructural bottlenecks have negative impact on Pakistan's import and export flows.

Keywords: trade policy, regional commerce, gravity model, import-export flows, generalized least square method, currency exchange rate.