India-Pakistan Trade Liberalization: A CGE Modeling Approach

  • Sanjib Pohit
  • Radhika Saini


With intra-regional trade accounting for only 5 % of its total trade, South Asia is probably the least integrated among the various regional groupings in the world. The principal reason is the mistrust between the two largest nations of South Asia—India and Pakistan. Of late, positive signals from the policymakers of the two countries seem to indicate that the worst is over. There have been moves toward normalizing trade between India and Pakistan, which augurs well for the economies of both nations. Though India gave Most Favored Nation (MFN) status to Pakistan in 1996, there are now signals from across the border indicating that Pakistan will shortly grant MFN status to India. In this context, this chapter attempts to assess the impact of bilateral trade liberalization on both economies and on the rest of South Asia. Our results indicate that there are significant gains from India-Pakistan mutual trade liberalization. However, these gains are realized only when productivity gains occur in the modes of transport services involved in trade between these two countries. This is expected, given the logistics problems in trade between India and Pakistan.


Trade Liberalization Free Trade Agreement Computable General Equilibrium North American Free Trade Agreement Computable General Equilibrium Model 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. De P, Raihan S, Ghani E (2013) What does MFN trade mean for India and Pakistan? Can MFN be a panacea? Policy research working paper no. 6483. World Bank, Washington, DCCrossRefGoogle Scholar
  2. Hertel TW (ed) (1997) Global trade analysis: modeling and applications. Cambridge University Press, CambridgeGoogle Scholar
  3. Huff KM, Hertel TW (2000) Decomposing welfare changes in the GTAP model. GTAP technical paper no. 5. Available at Accessed 2 Apr 2014
  4. Husain I (2011) Prospects and challenges for increasing India-Pakistan trade. Atlantic Council, Washington, DC. Available at Accessed 1 Apr 2014
  5. Khan SR, Yusuf M, Bohkari S, Aziz S (2007) Quantifying informal trade between Pakistan and India. In: Naqvi ZF, Schuler P (eds) The challenge and potential of Pakistan-India trade. World Bank, Washington, DC, pp 87–104Google Scholar
  6. Pursell G, Khan A, Gulzar S (2011) Pakistan’s trade policies: future directions. International Growth Centre working paper 11/0361. Available at Accessed 2 Apr 2014
  7. Rahman M, Shadat WB, Das NC (2006) Trade potential in SAFTA: an application of augmented gravity model. CPD occasional paper series 61. Centre for Policy Dialogue, DhakaGoogle Scholar
  8. Raihan S, Razzaque MA (2007) Welfare effects of South Asian Free Trade Area (SAFTA). Regional trading arrangements (RTAs) in South Asia: implications for the Bangladesh economy. Paper prepared for the UNDP Regional Center, Colombo. Available at Accessed 2 Apr 2014
  9. Sikdar C (2011) Potential economic impact of India-Sri Lanka bilateral trade liberalization. In: 14th annual conference on global economic analysis, Venice, ItalyGoogle Scholar
  10. Taneja N (2006) India-Pakistan trade, ICRIER working paper no. 182. ICRIER, New DelhiGoogle Scholar
  11. Taneja N (2013) Enhancing India-Pakistan trade. New America FoundationGoogle Scholar
  12. Taneja N, Kalita P, Prakash S (2011) Issues in India-Pakistan trade negotiations. Econ Pol Wkly 46(30):24–28Google Scholar
  13. WTO (2013) WTO trade policy review on India. WT/TPR/S/249. World Trade Organization. Available at Accessed 2 Apr 2014

Copyright information

© Indian Council for Research on International Economic Relations (ICRIER) 2015

Authors and Affiliations

  1. 1.CSIR–National Institute of Science, Technology and Development StudiesNew DelhiIndia
  2. 2.Indian Council for Research on International Economic RelationsNew DelhiIndia

Personalised recommendations