Pakistan-India Trade:

Kalpana Kochhar and Ejaz Ghani
Most argue that trade potential between the two countries would
be much higher than the current level if the large volume of informal
and/or third-country trade were to be counted. The bottom line is that
deeper engagement through normal bilateral trade would lead to significant
welfare gains between the two countries.
Our ongoing research has examined several scenarios on the gains
from trade using a global computable general equilibrium (CGE) model
and country dynamic CGE models (see De, Raihan, and Ghani 2012 for
a detailed study). The CGE modelling framework of the Global Trade
Analysis Project (GTAP) (Hertel 1997) is a useful tool for examining the
economic and trade consequences of multilateral or bilateral trade agreements.
The GTAP model is a comparative static model, and uses a common
global database for the CGE analysis. The model assumes perfect
competition in all markets, constant returns to scale in all production
and trade activities, and profit- and utility-maximizing behavior of firms
and households, respectively. 3 Our research used UNCOMTRADE
trade data (De, Raihan, and Ghani 2012 and Hertel 1997). While the
alternative scenarios provide important insights, our research is still at an
early stage, and much more analysis is needed.
TWo Trade oPTions
Two options that examine the benefits of trade policy liberalization and
improvements in trade logistics are discussed below.
Option 1: Pakistan gives MFN to India (with or without improvement in
trade facilitation)
In this first option, empirical simulations were based on two scenarios.
In the first scenario, Pakistan gives MFN status to India without trade
facilitation. Here, it is assumed that Pakistan extends MFN treatment to
India by replacing its positive list with a negative list. The second scenario
involves Pakistan extending MFN status to India and, in addition,
there are improvements in trade facilitation between the two countries.
In the second simulation, it is assumed that the transportation cost for
bilateral trade in goods between India and Pakistan will decrease by 25
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