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Is SAFTA trade creating or trade diverting?: A computable general equilibrium assessment with a focus on Sri Lanka

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  • Bouet, Antoine
  • Mevel, Simon
  • Thomas, Marcelle

Abstract

The Agreement on South Asian Free Trade Area (SAFTA) entered its second phase of implementation in 2008. The creation of a free trade area is expected to affect its participants—Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka—very differently given their diversity in terms of size, income, and structure of trade and protection. Using the 2004 MAcMapHS6-v2 database on measures of applied protection at the HS6 level and MIRAGE, a computable general equilibrium global model, this study examines the effects of SAFTA on trade and net income in the region. The magnitude of the effects will depend on initial levels of protection in the region and whether the agreement is trade diverting or trade creating. An important component of the SAFTA agreement is the exemption of products (sensitive list) from the trade liberalization process. Because such exclusion can restrict significantly the benefits from the regional trade agreement, we simulate the effects of SAFTA with and without sensitive products. Our findings show that among South Asian countries, Sri Lanka gains the most from the agreement because it initially has relatively low tariffs and faces high tariffs in the region. Exempting sensitive products from the agreement limits gains from trade for the lower-middle-income members of SAFTA but may be welfare enhancing for the least developed economies.

Suggested Citation

  • Bouet, Antoine & Mevel, Simon & Thomas, Marcelle, 2010. "Is SAFTA trade creating or trade diverting?: A computable general equilibrium assessment with a focus on Sri Lanka," IFPRI discussion papers 950, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:ifprid:950
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    Cited by:

    1. Berisha-Krasniqi, Valdete & Bouet, Antoine & Estrades, Carmen & Laborde, David, 2011. "Trade and investment in Latin America and Asia: Lessons from the past and potential perspectives from further integration," IFPRI discussion papers 1060, International Food Policy Research Institute (IFPRI).
    2. Taguchi, Hiroyuki, 2018. "Trade impacts of South Asian Free Trade Agreements: The case of Sri Lanka," MPRA Paper 85238, University Library of Munich, Germany.
    3. World Bank, 2010. "Food Price Increases in South Asia : National Responses and Regional Dimensions," World Bank Other Operational Studies 2885, The World Bank.
    4. Nasir Iqbal & Saima Nawaz, 2017. "Pakistan’s Bilateral Trade under MFN and SAFTA: Do Institutional and Non-Institutional Arrangements Matter?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 56(1), pages 59-78.

    More about this item

    Keywords

    South Asian Free Trade Area (SAFTA); trade liberalization; Computable General Equilibrium (CGE) model; welfare; trade; applied protection; income; FTA; Markets; Globalization;

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