Abstract
Regionalism in South Asia, through formation of regional and bilateral trading agreements, dates back to mid 1990s. The objective of this study is to assess the effects of various forms of trade agreements on bi-lateral trade of South Asia. Gravity model of international trade was used as the analytical tool and the effects of the World Trade Organization (WTO), Regional Trade Agreements (RTA) such as SAFTA, EU, ASEAN, BIMSTEC and NAFTA, and Bilateral Trade Agreements (BTA) were estimated. Three types of BTAs were included; between two South Asian countries, between a South Asian country and a country not in the region, and between two non-South Asian countries. Distance between the trading partners, sharing of common language, and colonial ties were the remaining explanatory variables included in the models. Cross sectional data covering 2555 bilateral trade for the year 2012 were used for the estimation and the data were extracted from the gravity databases of the Asia Pacific Research and Training Network, the World Bank and the WTO. The models were estimated using Ordinary Least Squares including importer and exporter fixed effects. The results of the estimation suggest that sharing of a common language, sharing a common colony, and membership of WTO positively and significantly affect export values and the effect of geographical distance, as expected, on the same has a negative effect. The memberships in BTA and RTA have mixed effects. Among RTAs used in the study, only the co-efficient for EU is statistically significant. SAFTA, ASEAN, BIMSTEC and NAFTA do not show significant effects on bilateral trade. The effects of all BTAs are positive and significant and they indicate that BTAs within South Asia enhance its regional trade greater than the BTAs with non-members. These results suggest that proliferation of BTAs within South Asia helped in expanding regional trade. Tropical Agricultural Research Vol. 26 (3): 468 – 485 (2015)
Highlights
South Asia is known as one of the least integrated region in the world
The analysis proved that trade agreements of Economic Cooperation Organization (ECO), European Free Trade Association (EFTA), MERCOSUR, South Asian Preferential Trade Agreement (SAPTA) and South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) generate strong positive intra bloc trade effects and it led member states to divert their trade towards its regional members
Two sets of estimation were proceeded to estimate the effects of World Trade Organization (WTO), Regional Trade Agreements (RTA) and Bilateral Trade Agreements (BTA) on both world exports and South Asian exports
Summary
South Asia is known as one of the least integrated region in the world. Its major export destinations and import sources locate outside the region which comprise of developed countries and fast growing economies in East Asia. United State of America, United Arab Emirates and China are three main export destinations of South Asia while China, United Arab Emirates and Saudi Arabia are the three main import sources. South Asia occupies relatively a minor position in world trade. The region as a whole supplies only. Effects of Regional Trading Agreements on South Asian Trade about 2 percent of world exports and contributes to 3 percent of world imports. South Asia’s intra-regional trade remains less than 5 percent of its total trade (UN COMTRADE, 2012)
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