Abstract
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.
Sanjib Pohit is a professor, AcSIR, and senior principal scientist at CSIR–NISTADS, and Radhika Saini is a research assistant at ICRIER. These are the authors’ personal views.
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Notes
- 1.
A detailed description of the model, equations, and the flowchart of the model is given in Hertel (1997).
- 2.
Generally, the tariff preferences are about 10–20 %.
- 3.
See Sect. 5.4 on interaction of the policy shock in our GTAP model.
- 4.
In Simulation 1, there is zero import tariff on goods traded between India and Pakistan.
- 5.
Since India and Pakistan are not changing import (export) tariffs on any goods imported (exported) from (to) any other trading partner, changes in trading prices would arise from movement in India/Pakistan’s trading prices.
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© 2015 Indian Council for Research on International Economic Relations (ICRIER)
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Pohit, S., Saini, R. (2015). India-Pakistan Trade Liberalization: A CGE Modeling Approach. In: Taneja, N., Pohit, S. (eds) India-Pakistan Trade. Springer, New Delhi. https://doi.org/10.1007/978-81-322-1949-1_5
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