Impact of Regional Trade Agreements on India’s Trade Potential: The Case of SAARC and APTA

Abstract

In view of the growing importance of Regional Trade Agreements (RTAs) in the era of trade liberalization, we examine the impact of two significant RTAs of India, SAARC trading bloc and APTA, on its trade potential. We employ panel data regression on an augmented gravity model using data over the period 1991-2016 for 23 Asian countries which are India’s trading partners. In order to capture the impact of explanatory variables, the study uses fixed effects estimation and Hausman Taylor estimation. Our results show that conventional gravity variables such as GDP of the trading partners and liberal trade policies are significant determinants of India’s trade. The results for variables of interest, APTA and SAPTA (for SAARC) export/import creation indicate that both the trading bloc are facilitating India’s trade flow. The ‘age’ variable for SAARC trading bloc show that India’s imports from SAARC nations has significantly reduced with the passage of time and India’s exports to APTA trading bloc is more or less stagnant since the last decade. While China and Korea are dominating intra-APTA exports but India’s intra-SAARC exports are gaining more strength with passage of time.