Trade Liberalization Under SAFTA and BIMSTEC: Evidence from a CGE-GTAP Case Study of a Small Open Economy

Regional trade liberalization via preferential agreements increasingly shapes economic outcomes in small open economies embedded in overlapping regional frameworks. This study evaluates the short-run economy-wide effects of tariff and non-tariff measure (NTM) reforms under the South Asian Free Trade Area (SAFTA) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) using a Computable General Equilibrium (CGE) model calibrated to the GTAP 10 database. Gravity-based estimates of ad valorem equivalents (AVEs) of NTMs are integrated into the CGE framework, enabling explicit modeling of regulatory barriers alongside tariff reductions. Policy simulations examine scenarios involving a 90 percent tariff cut and a 50 percent NTM reduction, applied individually and jointly, under a short-run closure with fixed factor endowments and a trade balance for Nepal. Results indicate that combined liberalization yields positive macroeconomic adjustments, with real GDP rising by about one percent and exports increasing by over 14 percent, driven primarily by the manufacturing sector, particularly textiles, while agricultural responses vary by exposure to NTMs. These findings provide policy-relevant evidence on the relative effectiveness of tariff and regulatory reforms, informing strategies for deeper regional integration and enhanced competitiveness in small, structurally constrained economies.