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Sri Lanka's Free Trade Agreements with its South Asian Neighbours: Economic Versus Strategic/Political Considerations

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  • Bandara, Jayatilleke S.
  • Yu, Wusheng

Abstract

In recent years, regional trade or free trade agreements (RTAs or FTAs) have proliferated around the world.These RTAs differ vastly in terms of memberships, scope, coverage and motivations. There are different reasons and motivations for forming RTAs in different parts of the world. The recent surge of RTAs cannot be examined by using anyone-size-fits-allexplanation. Very often the purpose of integration is political and the economic consequences are side effects of political decisions. Most of the economic analysis and commentary on RTAs has focused on the economic effects. In empirical studies of RTAs, potential political benefits or actual political benefits of RTAs in terms of externalities have been ignored. The South Asian countries have been engaged in forming bilateral or plurilateral RTAs within the region without much economic gains since the 1990s. It would be natural to explore why these countries are continuing in forming RTAs within the region. A likely answer to this question would be that the motivations behind forming RTAs within the region are not purely based on the potential economic benefits. The strategic and political considerations may very well be more important to member countries. The purpose of this paper is to address this issue using two bilateral FTAs signedbySriLankarespectivelywithIndiaandPakistanasexamples.Morespecifically,byexaminingeconomicgainsofSriLankasFTAswithIndiaandPakistan,itattemptsto answer the question: does a bilateral FTA lead to an improvement of security of a member country and greater peace between two member countries? In this paper we argue that Sri Lanka managed to increase its security by neutralising the pressure from India and gaining military and strategic support from Pakistan for its current war in the north of the island.

Suggested Citation

  • Bandara, Jayatilleke S. & Yu, Wusheng, 2009. "Sri Lanka's Free Trade Agreements with its South Asian Neighbours: Economic Versus Strategic/Political Considerations," Conference papers 331836, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331836
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    References listed on IDEAS

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    1. John Whalley, 1998. "Why Do Countries Seek Regional Trade Agreements?," NBER Chapters, in: The Regionalization of the World Economy, pages 63-90, National Bureau of Economic Research, Inc.
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