Will South Asia Benefit from Pan-Asian Integration?

Abstract

This article examines the gains for South Asian economies from integrating with East Asia and India’s role in this process. Evidence of increased pan-Asian integration exists but the process is uneven. Bilateral trade has grown. Bilateral foreign direct investment flows and free trade agreements (FTAs) have also increased, albeit at a slower pace than trade. The integration process has been led by India and Pakistan with limited participation of smaller South Asian economies. Tackling key impediments in infrastructure, FTAs, trade barriers and business regulations, and barriers to services will foster further integration. Computable general equilibrium simulations suggest that a South Asia–East Asia FTA offers the most gains for South Asia and that India has an incentive to include its neighbours in such an arrangement rather than going it alone with East Asia. The rest of South Asia will gain by deepening South Asian integration and fostering ties with East Asia.

Introduction and Overview

“…Inter-regional exports and imports have risen significantly since the early 1990s, with bilateral trade flows growing even faster than the overall trade of these two dynamic regions, and foreign direct investment (FDI) more than doubling over the past decade. However, these changes have proceeded from a very small base; inter-regional economic integration is still low and far below that expected given regional characteristics (Francois et al 2009;Dasgupta et al 2012;Wignaraja 2014a). While overall trade and investment liberalization in both regions has been remarkable over the past generation, inter-regional barriers have only fallen proportionately, even though, for example, intra-regional trade in ASEAN is now essentially tariff-free and the region has been embracing deep integration in the form of a stylized unified market, the ASEAN Economic Community (AEC).…”

Opportunities and Challenges for Regional Economic Integration in the Indian Ocean

“…4 4Policy benchmarking is increasingly used in studies of regional integration. See, ADB (2010) and Wignaraja (2014).…”

Second-generation Cooperation Agenda

“…A key reason was lack of attention to develop physical and institutional infrastructures and initiatives, which has failed to stimulate development of cross-border value and supply chains through greater flow of investment and development of intraindustry trade (Kelegama, 2012). South Asia will gain significantly from fostering ties with the greater Asian region, if these key impediments are tackled (Wignaraja, 2014).…”