Has trade improved from SAPTA to SAFTA Evidence from the gravity model

Abstract

Studies show that South Asia is one of the least integrated regions in the world. The wave for regional economic integration in this region commenced with the creation of the South Asian Association for Regional Cooperation (SAARC) in 1985. In order to increase trade and economic integration among the South Asian economies, SAARC Preferential Trading Arrangement (SAPTA) was commenced in 1993 and South Asian Free Trade Area (SAFTA) in 2004. With this background, this study is an attempt to evaluate the effects of SAPTA and SAFTA on the member countries intra-regional trade based on the augmented gravity model. The results confirm that SAPTA as well as SAFTA have not increased the members' intra-regional trade. There is thus, need to boost trade among South Asian nations by trade facilitation measures, reducing non-tariff measures (NTMs), pruning unnecessary sensitive-list, lessening strict rules of origin (RoO), making export-basket complementary and by resolving geo-political tensions.