“Freeing” Trade in South Asia

Abstract

This paper discusses economic integration in the South Asian region using an India-centric approach. It suggests that the gains for India withdrawing its tariff on imports from Pakistan and Bangladesh hugely outweigh the losses for the country. It uses a bilateral trade approach, analyzing the India-Pakistan and India-Bangladesh trade relationships. The India-Pakistan relationship shows Pakistan's exports to India contribute much less to India's total imports than to Pakistan's GDP. The benefits of India unilaterally withdrawing tariffs, thus, are substantial. The India-Bangladesh trade relationship, despite having many complementary characteristics, is not very well established. Both the countries will gain immensely if India opens up its borders to their exports. These gains will outweigh the minor losses for India which will be compensated for by its increased goodwill. Economic integration is important to maintain stability in this region and the two bilateral relationships described above are crucial in ensuring this.

(JEL Codes: F13, F14, F15)