Report

4 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA
equilibrium (CGE); gravity model; SMART (software
for market analysis and restrictions on trade) model;
and panel data estimations have been employed. The
fact that some of the policy scenarios have already been
set (and in fact implementation of them has already
commenced), adds to the greater precision with which
the global trade and analysis project (GTAP) model can
be used as a predictive tool.
Given the various issues of trade and transport
facilitation in South Asia, a quantification of gains from
identified regional infrastructure projects using benefit
cost analysis (BCA) is undertaken. Although regional
in nature, the benefits are computed for the country
which is undertaking the project on its territory to
demonstrate the extent of benefits that can accrue. The
four projects include: Upgrading of the Kolkata-
Petrapole/Benapole corridor and Customs Facilities;
Development of Bagdogra Airport as a Gateway and
Hub; Railway Improvement at between Lahore and
Wagah; and Colombo Port Expansion.
There is also the view that in the new generation of
free trade agreements (FTAs), services, investment, and
rules (SAFTA++) are the key to the way in which
countries gain through region-wide organisation of
production and sourcing. 1 This study also examines
the SAFTA++ scenario under which it identifies sectoral
and modal comparative advantages in trade in services
of each of the member countries and determines the
extent to which complementarities exist. This is
corroborated with the analysis of the service sectors in
which cross-border trade potential exists and trade
restrictions prevent in actualising this potential. Further,
the study examines the potential for trade as well as
the ways of accelerating the existing trade. Detailed
analysis is undertaken for identified services sectors,
which are health and related services, higher education,
construction and related services, travel and tourism
related services and telecommunication services. The
possibility of mutual recognition agreements (MRAs)
in these service sectors has been explored which may
boost the trade in services within the SAFTA region.
The study attempts to measure both qualitative and
quantitative assessments of the outcomes in the affected
sectors. Apart from providing a prognosis, the study
will help in the formulation of concrete policy measures
that will ensure more gains and mitigate potential
negative impacts. Based on the existing domestic policies
of the countries under review, suggestions have been
made on what complementary measures could be
introduced to mitigate the negative impacts and enhance
positive impacts of SAFTA. The study provides economic
assessments using analytical tools and rational
causal chain analysis and clearly outlines the way
forward for SAFTA in terms of policy directions.
The study is organised as follows: The rest of the
chapter provides the background of SAFTA and prevailing
economic situation in the member countries with
some discussion on the existing trade regimes. Chapter
2 presents a review of literature and the debates on the
rationale for SAFTA. It discusses both qualitative as
well as quantitative studies undertaken with respect to
regional cooperation focusing on SAFTA.
Chapter 3 estimates a number of indices that
indicate the extent and change in the competitiveness
and complementarities between member countries of
SAFTA to arrive at the economic rationale for SAFTA.
Chapter 4 estimates the impact of SAFTA on trade in
the region. Using the negative lists of member countries
of SAFTA it presents results of the impact of different
SAFTA scenarios on effective additional market access
that will accrue to the member countries with SAFTA.
Chapter 5 estimates the gravity model to arrive at the
potential trade that may be achieved due to SAFTA for
the region as a whole and also for each member country.
Bilateral trade potentials are also estimated. The chapter
further highlights the extent of increase in trade by
removal of tariffs and non-trade barriers.
Chapter 6 uses GTAP analysis to estimate the
impact of different scenarios of SAFTA. The impact is
analysed on exports, imports, output change,
employment change and welfare change. Sector-wise
impact analysis is also undertaken and sectors where
each member-country will lose or gain are identified.
Chapter 7 estimates the costs of SAFTA in terms of
revenue loss to each member country. SMART simulations
have been used which also indicate the extent of
consumer welfare gain or loss. Chapter 8 analyses
impact of deepening of SAFTA by inclusion of investments.
Impact of regional cooperation through SAFTA
on inward foreign direct investments (FDI) has been
estimated. Chapter 9 provides results with respect to
quantification of benefits from transport facilitation
1
The point is important, because it has also been argued that to the extent that the New Regionalism in Latin America and
elsewhere is significantly about these deeper aspects of integration, the traditional analysis of costs and benefits of RTAs,
which focus mainly on barriers at the border, while ignoring differences in national institutions and domestic regulations, is
seriously deficient.