“Economic
Co-operation in South Asia: The Dilemma of SAFTA and Beyond”
Citation: Ganesh-Kumar, A. and G. K. Saini.
2007. “Economic Co-operation in South Asia: The Dilemma of SAFTA and Beyond”. Working Paper 2007-017, Indira Gandhi Institute of Development
Research, Mumbai.
Abstract: This paper attempts to evaluate the
Pareto optimality of SAFTA for all the member states. Besides, the welfare
optimality of three other alternative sets of coordinated trade policies that
go beyond SAFTA has also been studied here. These include (a) extended
preferential trading between SAFTA and three other major trading blocs (ASEAN,
NAFTA and EU27), (b) coordinated full trade liberalisation (carried out
unilaterally or as part of a multilateral agreement) by South Asian countries,
and (c) SAFTA plus a customs union (two variants with 5% and 10% CET). The
analysis, using the standard static GTAP model, shows that the welfare basis
for establishing SAFTA or for deeper trade policy coordination is not very
strong. Nor is it obvious that cooperation among the South Asia would be
forthcoming given the anticipated welfare impacts.