An Analysis of Determinants of Agriculture Trade Intensities of South Asia

Abstract

South Asia is considered as the least integrated region in the world despite many attempts made to liberalize movement of goods and services within the region. Intra-regional total trade and agricultural trade among South Asian countries are about 4% and 8% respectively. The objectives of this study are to document the extent of intra-regional trade of South Asia using trade intensities and to evaluate the determinants of the same using gravity models. Three equations were estimated taking exporter GDP, importer GDP, exporter population, importer population, distance, WTO membership, regional and bilateral trade agreements, common language, common colony and diversification index as the independent variables for the year 2010. The first model used total-trade intensities as the dependent variable and covered 2490 country pairs. The second and third models were sub-samples covering total trade and agricultural trade respectively in South Asia. The results show that higher agriculture trade exchanges exist between Pakistan-Afghanistan and Nepal- Bhutan. Total trade intensities are higher for Afghanistan-Pakistan and Afghanistan-India. The estimation results of gravity models indicate that exporter GDP, importer population, distance and colonial ties are significant determinants of trade intensity in all three models. Even though WTO membership and regional trade agreements are key determinants of both world and South Asian total trade, they do not significantly influence agriculture trade. Bilateral trade agreements have strong influence in strengthening trade relationships in agriculture trade intensities in South Asian region. Export market diversification is a key determinant of trade intensities. Sri Lankan Journal of Agricultural Economics Vol.(14-15)No. 1 (2012-2013) pp. 59-81