The India–Sri Lanka Free Trade Agreement (ISFTA) was signed between India and Sri Lanka in December 1998 and came into operation in March 2000. It is now 10 years since this FTA has been signed and during this period the bilateral trade between these two economies has reached new heights and dimensions. Against this backdrop the present article proposes a theoretical framework which provides a general equilibrium determination of the commodity pattern of trade between the economies that helps to isolate their pattern of comparative advantages. The empirical implementation of the model considers trade in 33 sectors comparable in the input–output tables of the economies. The study isolates the gains from free trade accruing to either economy. The article also explores the pattern of bilateral trade when each economy has a choice to produce goods by utilizing its own or the other country’s technology.
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