Economic Cooperation in South Asia

Abstract

This article attempts to evaluate the Pareto optimality of SAFTA and three other alternative sets of coordinated trade policies that go beyond SAFTA for all the member states. These include (a) extended preferential trading between SAFTA with other major trading blocs, (b) full trade liberalisation by South Asian countries and (c) SAFTA plus a customs union. The analysis, using the standard static Global Trade Analysis Project (GTAP) model, shows that (a) there would be winners and losers amongst the member states, (b) the winners and losers vary across alternative scenarios that represent different trade policy regime and (c) the gains/losses as the case may be are not very large. Thus, the welfare basis for establishing SAFTA or for deeper trade policy coordination is not very strong. Justification for SAFTA may lie in other dimensions of regional cooperation than in mere tariff policy coordination.

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