Pakistan-India Trade:

Kalpana Kochhar and Ejaz Ghani
trade liberalization via the granting of MFN status to generate the greatest
gains for India and Pakistan, it is critical that there are accompanying
reforms of trade facilitation and connectivity. Trade facilitation reforms
will lead to the reduction of behind-the-border barriers, and decrease
the cost of trading across borders. These reforms could include improvements
in infrastructure, institutions, services, procedures, and regulatory
systems. The results of general equilibrium simulations (described in detail
later on) suggest that Pakistan’s granting of MFN status to India will
generate larger trade benefits only if it is supported by improved trade
facilitation and connectivity. In other words, the net economic impact of
improved trade facilitation would be larger for both Pakistan and India,
and eventually would lead to stronger economic growth for the region.
What is remarkable about South Asia is that it is the second fastest
growing region in the world, but it is also the least integrated region. The
region has integrated with the world, but not with its neighbors. This
low level of integration has implications for prosperity and the pace of
poverty reduction in South Asia. Two of the poorest South Asian countries,
Afghanistan and Nepal, are land-locked. Several lagging regions
of the larger South Asian countries of Bangladesh, India, and Pakistan
are located in border areas. Out of the 14 states in India that have borders
with neighboring countries, 12 have per capita income levels at
or below the national average (Arunachal Pradesh, Assam, Meghalaya,
Mizoram, Nagaland, Tripura, Manipur, West Bengal, Bihar, Uttar
Pradesh, Jammu and Kashmir, and Rajasthan). In Pakistan, per capita
income is lower than average in the border provinces of Khyber
Pakhtunkhwa, Baluchistan, and rural Sindh. In Bangladesh, the border
districts tend to have per capita incomes lower than the national average.
Typically, these sub-regions have poor connectivity with markets
in neighboring countries. This in part explains why the poverty mass in
South Asia is concentrated in the lagging regions, many in the border
regions, while economic mass is concentrated in the leading regions.
South Asia’s coming demographic transition, and the fact that traditional
advanced country partners may have entered a prolonged slowdown,
provide new momentum for local and regional integration.
Improved peace and stability, the demographic transition, and better
trade facilitation will make domestic markets even larger. Increased regional
trade could be the catalyst that attracts global production centers to
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