Report

COMPETITIVENESS AND COMPLEMENTARITIES 33
while Sri lanka has become more competitive in sacks
and bags, cork products, transformers and resistors,
etc.
A list of products where all four countries are
competitive, i.e. RCA>1 is presented in Table 3.2
(Appendix III). Textile products are still the products
where all four major trading partners of the region compete
in the third country market. However, these countries
have also gained competitiveness in products like
shrimps, spices, woven carpets, cotton yarn wastes, etc.
The competitiveness analysis therefore indicates
that the potential for intra-regional trade has increased
substantially in 2004 as compared to a decade back.
Countries have gained competitiveness in different
products and at a more disaggregated level, the products
which can be exported within the region by the four
major trading partners have increased substantially in
number. However, whether the competitive edge of a
country leads to higher exports within the region also
depends on whether other countries in the region import
these products or not? The next section examines the
complementarities within the region.
INTRA-REGIONAL COMPLEMENTARITIES
For intra-regional trade to expand it is important that
the trade profiles of the countries match, i.e., what is
exported by one country should be imported by the
region as a whole. It is therefore important to examine
whether the countries’ export and import profiles
within the region have become similar over time and,
therefore, facilitate growth in intra-regional trade or
not. The estimated ‘trade complementarity index’ (TCI)
shows how well the export profile of one country, or
group of countries, matches the import profiles of
others (Yeats and Ng 2003). Furthermore, changes in
the index over time can help determine whether their
trade profiles are becoming more, or less, compatible.
We estimate the complementarity index between
South Asian countries with SAARC as a region. The
index of trade complementarity between two countries
k and j (C kj
) is defined as,
C ikj
= 1 – Σ (|M ik
– X ij
| ÷ 2) (1)
C ijk
= 1– Σ (|M ij
– X ik
| ÷ 2) (2)
where k is a SAARC country, j is the SAARC region,
and i represents product category. This index takes the
value of one when a composition of import needs in an
importing country matches perfectly with the export
bundle of the region. At the other extreme, where an
export bundle of an exporting country has no relevance
to the import needs of the region, the index takes the
value of zero. As such, it is assumed that higher the
index value more favourable is the prospect for a
successful trade arrangement in the region.
Michaely (1994) used the index to assess prospects
for Latin American trade arrangements, while Yeats
(1998) employed the measure to analyse the compatibility
of Sub-Saharan African countries’ intra-regional
trade. For SAARC region the trade complementarity
index has been estimated by Nag and Nandi (2003)
for the years 1997 to 2001. They find that there is a
significant rise in TCI of India during this period for
SAARC countries. But find rising TCI for Pakistan and
Sri Lanka in the SAARC region.
We estimate the TCI taking averages of the years
1991–93 and 2002–04 (Table 3.4). The indices are
computed based on the United Nations/COMTRADE
bilateral trade flow data at the SITC (Rev 3) five-digit
level.
The TCI for the two time periods indicate that,
except for Pakistan, complementarities of Bangladesh,
India and Sri Lanka vis-à-vis SAARC region as a whole
has increased overtime. The TCI in terms of exports of
India and Sri Lanka to SAARC region has almost
doubled in this time period ( from 0.05 to 0.1 and from
0.21–0.50) while TCI in terms of exports of SAARC
region to countries has also increased overtime. This
strongly indicates that there exist possibilities of intraregional
trade expansion.
Trade complementarity index has been further
estimated for total trade for each country for the two
time periods (Table 3.5). The results show that TCI for
total trade has also improved drastically for Bangladesh,
Table 3.4 Complementarity Index – Export and Import
Country 1991(Avg Yr 1991–93) 2004 (Avg Yr 2002–04)
SAARC Bangladesh India Pakistan Sri Lanka SAARC Bangladesh India Pakistan Sri Lanka
SARRC 0.05 0.22 0.25 0.08 0.06 0.31 0.10 0.12
Bangladesh 0.17 0.27
India 0.05 0.10
Pakistan 0.38 0.24
Sri Lanka 0.21 0.50