Trade Facilitation in Customs Environment: Measuring the Impact on Economic Integration in South Asia

Abstract

Customs is a complex arena in the domain of international trade facilitation in developing regions of the world like South Asia. Despite the establishment of a free trade area in South Asia, the countries in the region still uphold a significant level of customs barriers for each other. South Asia’s intra-regional trade is just 6.1% of its total trade, making it the least unified region of the world. This study measures the impact of trade facilitation in the customs environment on regional economic integration in South Asia through intra-regional trade. The study developed its index for customs environment and incorporated it into an augmented panel gravity model to conclude that an improved customs environment significantly increases trade flows within the region. The estimates of simulation analysis illustrate that South Asia has immense potential for expanding intra-regional trade if collective regional efforts are made in trade facilitation in the customs environment. By doing so, trade flows could increase by 41–143% in various scenarios, which could not be achieved otherwise, even by completely phasing out tariffs. India is the largest country in South Asia and therefore has a detrimental part to play in achieving this. JEL Codes: C23, F10, F15, F17