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How effective is the Free Trade Agreement in South Asia? An empirical investigation

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  • Amirul Islam
  • Harry Bloch
  • Ruhul Salim

Abstract

We investigate the efficacy of preferential trade liberalization in changing the observed trade pattern among the South Asian countries that have entered into the South Asian Free Trade Agreement (SAFTA). Although in its nascent stage, some data are now available to provide an ex-post evaluation of the performance of this bloc. Using these data, we find no empirical evidence of trade creation among SAFTA members, which is not surprising given that tariff concessions in SAFTA are small and are offset by complicated rules of origin procedure. However, a substantial and statistically significant increase in exports from SAFTA members to the rest of the world is found. Several panel strategies are used to check the sensitivity of the results against the assumptions of the estimation strategies. As some key coefficient estimates are found to differ across estimation methods, policymakers in South Asia need to use care in relying on the results from empirical studies, including our own, in formulating their trade policies.

Suggested Citation

  • Amirul Islam & Harry Bloch & Ruhul Salim, 2014. "How effective is the Free Trade Agreement in South Asia? An empirical investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(5), pages 611-627, September.
    • Handle: RePEc:taf:irapec:v:28:y:2014:i:5:p:611-627
    DOI: 10.1080/02692171.2014.918940
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    References listed on IDEAS

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    1. Maria Cipollina & Luca Salvatici, 2010. "Reciprocal Trade Agreements in Gravity Models: A Meta‐Analysis," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 63-80, February.
    2. World Bank, 2004. "Trade Policies in South Asia : An Overview, Volume 2. An Overview," World Bank Publications - Reports 15657, The World Bank Group.
    3. Mustafizur Rahman & Wasel Bin Shadat & Narayan Chandra Das, 2006. "Trade Potential in SAFTA: An Application of Augmented Gravity Model," CPD Working Paper 61, Centre for Policy Dialogue (CPD).
    4. World Bank, 2004. "Trade Policies in South Asia : An Overview, Volume 1. Operational Summary," World Bank Publications - Reports 14379, The World Bank Group.
    5. World Bank, 2004. "Trade Policies in South Asia : An Overview, Volume 3. Some Key Sectors," World Bank Publications - Reports 15658, The World Bank Group.
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    Cited by:

    1. Bob Milward, 2015. "On the Historical, Moral and Economic Arguments for Asymmetric Trading Regimes: the case of sub-Saharan Africa," World Economic Review, World Economics Association, vol. 2015(5), pages 1-87, July.
    2. Ruhul Salim & Amirul Islam & Harry Bloch, 2018. "Patterns And Determinants Of Intra-Industry Trade In Southeast Asia: Evidence From The Automotive And Electrical Appliances Sectors," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(03), pages 647-665, June.
    3. Cosmas S. Mbogela, 2018. "Determinants of Africa - BRIC Countries Bilateral Trade Flows," Economy, Asian Online Journal Publishing Group, vol. 5(1), pages 40-53.
    4. Tareg Ghazi Alghabbabsheh & Saleh Saud AlSaif & Md Saiful Islam & Tareq Saeed AlShammari & Ali M A Mahmoud, 2022. "Have Bilateral Free Trade Agreements (BFTAs) been beneficial? Lessons learned from 11 U.S. BFTAs between 1992 and 2017," PLOS ONE, Public Library of Science, vol. 17(4), pages 1-21, April.

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