Report

46 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA
However, common ethnic language is found to influence
bilateral trade amongst the SAFTA member countries.
This may imply that common cultures lead to higher
trade between countries.
ESTIMATES OF POTENTIAL TRADE
Potential intra-regional trade under SAFTA is estimated
using the coefficients (Equation 1) arrived at by the
fixed effect models presented in Table 5.1. The results
are presented in Table 5.2.
Table 5.2 Trade Potential in SAFTA (US Bn $),
1995–2005
Potential Actual GAP (%
Trade Trade of Actual
Trade)
Using coefficients of 85.1 38.5 120
equation 2 (without tariffs)
Using coefficients of 54.0 38.5 40
equation 1 (with tariffs)
For the year 2004 9.0 5.8 55
The estimates show that the potential trade among
the SAFTA member countries as predicted by the gravity
model is 120% more than the actual trade. A number
of studies have estimated potential trade as the
difference between trade predicted by the gravity model
and actual trade. The entire difference between
predicted and actual trade has been attributed to tariffs
and it has been argued that removal of tariffs will
increase trade to the predicted level. However, the entire
difference between the predicted trade and actual trade
may not be due to tariffs. The results show that even if
tariffs are not removed the gap between potential and
actual intra-regional trade exists. Increase in trade
which can be directly attributed to removal of tariffs
under SAFTA is 80% of the actual intra-regional trade
from the predicted intra-regional trade of 120%. This
implies that apart from tariffs there exist other barriers
to trade. Intra-regional trade may rise by further 40%
if other factors affecting trade are addressed like nontariff
barriers, political constraints, etc.
Table 5.3 presents potential and actual bilateral
trade (taking average of the period 1995–2005) for
different trading partners in SAFTA. The results show
that the gap between actual and potential trade on an
average for each trading partner is of around 55%.
The trading partners have very little bilateral trade and
can increase their trade by almost 100%. These are
Bhutan and Maldives; Bhutan and Sri Lanka; Maldives
Table 5.3 Bilateral Potential and Actual Trade: Average (1995–2005)
Trading Partners Potential Trade (US$) Actual Trade(US$) GAP between Actual and
Potential Trade (%)
Bangladesh Bhutan 74,122,629 1,851,748 97.5
Bangladesh India 1,649,726,827 1,169,270,758 29.1
Bangladesh Maldives 62,313,028 33,754 99.9
Bangladesh Nepal 260,668,335 5,151,398 98.0
Bangladesh Pakistan 707,113,385 176,874,180 75.0
Bangladesh Sri Lanka 337,726,970 17,630,354 94.8
Bhutan India 203,427,095 89,076,530 56.2
Bhutan Maldives 7,757,506 794 100.0
Bhutan Nepal 31,459,064 301,755 99.0
Bhutan Pakistan 84,788,140 369,448 99.6
Bhutan Sri Lanka 39,226,671 3,192 100.0
India Maldives 172,314,889 26,263,194 84.8
India Nepal 699,049,061 571,226,702 18.3
India Pakistan 1,884,185,017 340,488,988 81.9
India Sri Lanka 871,776,252 969,255,660 –11.2
Sri Lanka Pakistan 383,773,384 127,775,924 66.7
Sri Lanka Maldives 35,445,306 59,066,225 -66.6
Sri Lanka Nepal 142,559,703 1,375,802 99.0
Maldives Nepal 27,397,294 468 100.0
Maldives Pakistan 73,840,899 1,988,579 97.3
Nepal Pakistan 299,656,776 3,955,535 98.7
Average Intra-Regional Trade 8,048,328,229 3,561,960,989 55.7