Does the role of observer countries in the regional trade agreement matter for intra-regional trade ? (original) (raw)
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Trade in South Asian Region (SAARC)-Evidence from Gravity Model
soegw.org
South Asian Association for Regional Cooperation (SAARC) is a relatively young economic integration project and appears to be very small compared to other existing regional blocks. This might be because of unexplored intra regional trade opportunities. It is general economic perception that the increase in international trade might be welfare improving. This paper attempts to make a formal analysis of these issues with the use of a gravity model of international trade. The objective is to examine whether intra-SAARC trade is lower or higher than what is predicted by an economic model. This gives an idea about the structure of comparative advantage in the SAARC countries that helps to explain why intra-SAARC trade is low and how trade among them can be increased. It also helps us to understand the possibility of trade creation and trade diversion effect resulting from South Asian Free Trading Arrangements (SAFTA). We also explain geo-political reasoning for more economic cooperation among the SAARC countries, suggesting areas where cooperation could be mutually beneficial to the economies. The gravity model has been exclusively used to measure bilateral trade among countries but not effectively used to measure intra-SAARC trade. Our gravity model results suggest that SAARC member countries are yet to accomplish trade-creating benefits. Appropriate policies need to be formulated for more regional integration. Liberalization of trade in SAARC countries offers significant gains for all the economies in the region. Efforts should be made to liberalize border trade and strengthen bilateral trade relations through the removal of tariff and non-tariff barriers in the general framework of South Asian Free Trading Arrangements.
Effects of regional trading agreements on South Asian trade: a Gravity model analysis
Tropical Agricultural Research, 2015
Regionalism in South Asia, through formation of regional and bilateral trading agreements, dates back to mid 1990s. The objective of this study is to assess the effects of various forms of trade agreements on bilateral trade of South Asia. Gravity model of international trade was used as the analytical tool and the effects of the World Trade Organization (WTO), Regional Trade Agreements (RTA) such as SAFTA, EU, ASEAN, BIMSTEC and NAFTA, and Bilateral Trade Agreements (BTA) were estimated. Three types of BTAs were included; between two South Asian countries, between a South Asian country and a country not in the region, and between two non-South Asian countries. Distance between the trading partners, sharing of common language, and colonial ties were the remaining explanatory variables included in the models. Cross sectional data covering 2555 bilateral trade for the year 2012 were used for the estimation and the data were extracted from the gravity databases of the Asia Pacific Research and Training Network, the World Bank and the WTO. The models were estimated using Ordinary Least Squares including importer and exporter fixed effects. The results of the estimation suggest that sharing of a common language, sharing a common colony, and membership of WTO positively and significantly affect export values and the effect of geographical distance, as expected, on the same has a negative effect. The memberships in BTA and RTA have mixed effects. Among RTAs used in the study, only the coefficient for EU is statistically significant. SAFTA, ASEAN, BIMSTEC and NAFTA do not show significant effects on bilateral trade. The effects of all BTAs are positive and significant and they indicate that BTAs within South Asia enhance its regional trade greater than the BTAs with non-members. These results suggest that proliferation of BTAs within South Asia helped in expanding regional trade.
2016
Many recent papers have pointed to ambiguous trade effects of developing regional trade agreements (RTAs), calling for a reassessment of their economic merits. We focus on seven such agreements currently in force in Sub-Saharan Africa (ECOWAS and SADC), Asia (AFTA and SAPTA) and Latin America (CACM, CAN and MERCOSUR), estimating their impacts on their members ' trade flows. Instead of the usual dummy variables for RTAs, we propose a variable taking into account the number of years of membership. We then combine a gravity model with kernel estimation techniques so as to capture the non-monotonic trade effects while imposing minimal structure on the model. The results indicate that except for SAPTA, all these RTAs have had a positive impact on their members ' intra-trade over the estimation period (1960-1999). AFTA seems to be the most successful among them with an estimated positive impact on its members ’ imports from the rest of the world (ROW), but its impact on their ex...
DRAFT From SAPTA to SAFTA: Gravity Analysis of South Asian Free Trade
South Asian Association for Regional Cooperation (SAARC) was established in 1985 and South Asian Preferential Trading Arrangement (SAPTA) came into existence in 1995. Four rounds of trade negotiations have already been concluded under SAPTA by 2002. SAARC countries have signed the framework agreement on South Asian Free Trade Area (SAFTA) in 2004 and SAFTA will come into effect at the start of 2006. We use the gravity model analysis to evaluate the progress of SAPTA and the prospects for SAFTA using trade data for 1996-2002. Both panel data and cross sectional data analysis have been used. Our gravity model results show that there is a significant trade creation effect under SAPTA and find no evidence of trade diversion effect with the rest of the world. This supports the proposition that further regional integration may bring about substantial benefits to SAARC region and South Asian Free Trade Area is most likely to promote intra-regional trade through further dismantling of tariff and other non-tariff barriers to trade among members.
Evaluating the Trade Effect of Developing Regional Trade Agreements: a Semi-parametric Approach
Journal of Economic Integration, 2009
Many recent papers have pointed to ambiguous trade effects of developing regional trade agreements (RTAs), calling for a reassessment of their economic merits. We focus on seven such agreements currently in force in Sub-Saharan Africa (ECOWAS and SADC), Asia (AFTA and SAPTA) and Latin America (CACM, CAN and MERCOSUR), estimating their impacts on their members' trade flows. Instead of the usual dummy variables for RTAs, we propose a variable taking into account the number of years of membership. We then combine a gravity model with kernel estimation techniques so as to capture the non-monotonic trade effects while imposing minimal structure on the model. The results indicate that except for SAPTA, all these RTAs have had a positive impact on their members' intra-trade over the estimation period (1960-1999). AFTA seems to be the most successful among them with an estimated positive impact on its members' imports from the rest of the world (ROW), but its impact on their exports to the ROW is rather limited. During its first ten years of existence, ECOWAS appears to have had a positive impact on its members' imports from the ROW, but this positive impact vanished over time. SAPTA's negative impact on its members' intra-trade is probably an implicit effect of the India-Pakistan tensions over the estimation period.
Analysing the trade effects of the EU-SA & SADC trading agreements: a panel data approach
South African Journal of Economic and Management Sciences, 2011
This study investigates the trade effects of the EU-SA and SADC preferential trade agreements of which South Africa is a member. Using a panel data estimation of the gravity model of bilateral trade and based on data from 1994 to 2008, the study finds the EU-SA preferential trade agreement to have a significant trade expansion effect. The study further reveals that an informative conclusion on trade effects of the SADC preferential trade agreement can only be reached once the agreement has been fully operational. The study also recommends that trade policy in South Africa should increasingly be geared towards broad-based multilateral liberalisation. In addition, South Africa should promote regional economic stability and development through supporting regional trade agreement initiatives.
A New Examination of the Impacts of Regional Trade Agreements on International Trade Patterns
Journal of Economic Integration, 2019
This paper assesses the ex-post effects on the international trading system of eighteen pluri-lateral regional trade agreements (RTAs) by examining their impacts on intra-bloc trade and on the tendency of members to trade with the rest of the world. This study is based on a gravity model with a solid theoretical foundation involving Anderson and van Wincoop's (2003) multilateral resistance terms. The model assesses 160 countries over a time period that extends from 1960 to 2014. Making use of the Poisson pseudo maximum likelihood (PPML) estimator and selecting the proper RTA variable and fixed effects settings, our analysis confirms the widespread trade-promoting effects of RTAs with mixed effects on extra-bloc trade. However, trade diversion in terms of bloc exports and imports are detected mostly in American and African trade agreements in many cases. By contrast, export and import creations are more prominent for RTAs in Europe and Asia.
Intraregional Trade within SAARC Nations-A Review
2018
In recent years the South Asian region has emerged as the fastest growing region in the world. However, intraregional trade has lagged behind the region's deepening engagement in global trade with the effects of geopolitics and a legacy of mistrust leaving a mark on integration efforts. The current study focuses on SAARC economies to examine the impact of trade agreements on the basis of data for fifteen years i.e. from 2000 to 2015. The emphasis is on understanding the level of intraregional trade, issues, and challenges of the region and in conclusion, policy measures have been suggested to improve the integration of the region.
Impact of Trade Agreements on Exports : A Cross Country Analysis of Selected SAARC Countries
2018
The present study explored the trade implications of SAPTA and SAFTA agreements for selected SAARC countries including Pakistan. The study highlights the importance of trade agreements for economic growth and welfare gains. Main objectives of the study are to find the potential role of SAPTA and SAFTA for member countries and implications for Pakistani exports. Using the gravity model and data from 1980 to 2010, results of the study show that SAFTA has potential to affect the trade of SAARC countries and its potential role is high for relatively big countries like India. Results also show that the impacts of bilateral trade agreements are negative for Pakistani exports but SAPTA and SAFTA contributes positively towards Pakistani exports. * Assistant Professor, School of Economics, Quaid-i-Azam University, Islamabad, Pakistan. ** Lecturer, Department of Economics, Allama Iqbal Open University, Islamabad, Pakistan. *** M.Phil Scholar, School of Economics, Quaid-i-Azam University, Isla...
2010
Empirical studies on regional economic integration process in Africa exhibit sluggish progress and there by limited level of intra trade. The existing literatures in Africa, particularly in Southern African regional integration bloc, SADC have neglected effects of regional economic integration dealing with disaggregated data. This study analyzes trade creation and diversion effects of the Southern African Development Community (SADC) using disaggregated data from 2000 to 2007. The investigation estimates an augmented gravity model using panel data and random effect estimator methods. The results show that the intra-SADC trade is growing in fuel and minerals, and heavy manufacturing sectors while it displays a declining trend in agricultural and light manufacturing sectors. This implies that SADC has displaced trade with the rest of the world in both fuel and minerals, and heavy manufacturing sectors. SADC has served to boost trade significantly among its members rather than with the rest of the world. Countries participating in SADC have moved toward a lower degree of relative openness in these sectors trade with the rest of the world. However, the increasing trend of extra-SADC trade bias over the sample period in both agricultural commodities and light manufacturing sectors means that there has been a negative trade diversion effect. In other words, the value of trade between members and non-members has been increasing for the two sectors. These results seem to suggest that SADC countries retained their openness and outward orientation despite they signed the trade protocol for enhancing intra-SADC trade in agricultural and light manufacturing sectors.