Title: An empirical examination of trade flows in the SAARC region

Authors: P.R. Madhusoodanan

Addresses: Country Risk Team, Hongkong and Shanghai Banking Corporation, Floor 1, Salarpuria Soft Zone, Bellandur, Bangalore 560037, India

Abstract: South Asia combines a low level of regional integration and the presence of relatively high trade barriers. The proportion of trade originating in the region has increased in the last decade but still lags behind many similar regional arrangements. The present study employs an augmented gravity model to examine the impact of a set of macroeconomic and other policy factors on trade flows in the South Asian Association for Regional Cooperation (SAARC) region. The interesting finding is that export between two countries would increase by 152.2%, if there exists a bilateral trade agreement between countries compared to country-pairs without having bilateral trade ties. The empirical analysis reveals that reduction in tariff level is also a better measure to improve trade in the region. Further, the study supports specialisation in the region based on the relative factor endowments and cost advantage as well.

Keywords: international trade; bilateral agreements; gravity models; trade flows; SAARC; South Asian Association for Regional Cooperation; Asia; Afghanistan; Bangladesh; Bhutan; India; Maldives; Nepal; Pakistan; Sri Lanka; macroeconomics; policy factors; exports; tariff levels; relative factor endowments; cost advantages; business; globalisation.

DOI: 10.1504/IJBG.2010.035022

International Journal of Business and Globalisation, 2010 Vol.5 No.3, pp.273 - 279

Available online: 01 Sep 2010 *

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