IDEAS home Printed from https://ideas.repec.org/p/ags/pugtwp/332153.html
   My bibliography  Save this paper

India-ASEAN FTA: Implication of Phased Liberalisation

Author

Listed:
  • Nag, Biswajit
  • Sikdar, Chandrima

Abstract

The India-ASEAN Free Trade Agreement came into effect on January 1, 2010 with respect to Malaysia, Singapore and Thailand. For the remaining ASEAN members it will come into force after they complete their internal requirements. With this background, the present study seeks to analyse the impact of this FTA on India and the selected ASEAN countries following the phased liberalization. It also aims to study the impact of the FTA on Rest of South Asia and other ASEAN members. Using the GTAP database the study conducts a number of simulations involving different scenarios of India’s trade liberalization with ASEAN region and assesses the impact of this liberalization both on the economies’ external sector and their domestic macroeconomic variables. The welfare implications of the FTA for the countries involved are also studied. The simulation results reveal that India’s gain is mainly from the allocative efficiency. However, ASEAN countries receive large terms of trade gain in Indian market. The products coming from these countries are likely to be available at a price substantially lower than the average import price at which these goods are available in India. Indian firms are also gradually substituting domestic input by foreign inputs and thereby increasing the allocative efficiency. There is a signal that this agreement will increase trade diversion and many countries including China will loose market share in India. The paper also analyses the impact on various sectors, changes in output, factor demand and factor prices. The paper argues that in the long run after full trade liberalization, India’s allocative efficiency will increase but terms of trade effect will continuously fall and remain negative. India will be able to arrest the fall in terms of trade once the gain in allocative efficiency is used to improve the productivity in the export oriented sectors and achieve economies of scale. With the assumption of economies scale in selected Indian industries, India’s welfare gain stops falling and moves upward. A simple mathematical model has been proposed to analyse this.

Suggested Citation

  • Nag, Biswajit & Sikdar, Chandrima, 2011. "India-ASEAN FTA: Implication of Phased Liberalisation," Conference papers 332153, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
  • Handle: RePEc:ags:pugtwp:332153
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/332153/files/5457.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. L. ALAN WINTERS & NEIL McCULLOCH & ANDREW McKAY, 2015. "Trade Liberalization and Poverty: The Evidence So Far," World Scientific Book Chapters, in: Non-Tariff Barriers, Regionalism and Poverty Essays in Applied International Trade Analysis, chapter 14, pages 271-314, World Scientific Publishing Co. Pte. Ltd..
    2. Balistreri , Edward J. & Tarr, David G., 2011. "Services liberalization in preferential trade arrangements : the case of Kenya," Policy Research Working Paper Series 5552, The World Bank.
    3. Thomas F. Rutherford & David G. Tarr, 2014. "Poverty effects of Russia's WTO accession: Modeling “real” households with endogenous productivity effects," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 12, pages 287-306, World Scientific Publishing Co. Pte. Ltd..
    4. Broda, Christian & Greenfield, Joshua & Weinstein, David E., 2017. "From groundnuts to globalization: A structural estimate of trade and growth," Research in Economics, Elsevier, vol. 71(4), pages 759-783.
    5. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, vol. 74(5), pages 1016-1032, December.
    6. James R. Markusen & Anthony J. Venables, 2021. "Multinational firms and the new trade theory," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 3, pages 47-67, World Scientific Publishing Co. Pte. Ltd..
    7. World Bank, 2007. "Kenya : Unleashing the Potential for Trade and Growth," World Bank Publications - Reports 7999, The World Bank Group.
    8. Konan, Denise Eby & Maskus, Keith E., 2006. "Quantifying the impact of services liberalization in a developing country," Journal of Development Economics, Elsevier, vol. 81(1), pages 142-162, October.
    9. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
    10. Ana M. Fernandes, 2009. "Structure and performance of the service sector in transition economies1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(3), pages 467-501, July.
    11. James Markusen & Thomas F. Rutherford & David Tarr, 2017. "Trade and direct investment in producer services and the domestic market for expertise," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 19, pages 439-458, World Scientific Publishing Co. Pte. Ltd..
    12. Joseph Francois & Bernard Hoekman, 2010. "Services Trade and Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 642-692, September.
    13. JESPER JENSEN & Thomas F. Rutherford & David G. Tarr, 2014. "Modeling Services Liberalization: The Case of Tanzania," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 9, pages 191-222, World Scientific Publishing Co. Pte. Ltd..
    14. Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr, 2014. "Trade Policy Options for Chile: The Importance of Market Access," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 14, pages 329-359, World Scientific Publishing Co. Pte. Ltd..
    15. Balistreri, Edward J. & Rutherford, Thomas F. & Tarr, David G., 2009. "Modeling services liberalization: The case of Kenya," Economic Modelling, Elsevier, vol. 26(3), pages 668-679, May.
    16. Feenstra, Robert C. & Madani, Dorsati & Yang, Tzu-Han & Liang, Chi-Yuan, 1999. "Testing endogenous growth in South Korea and Taiwan," Journal of Development Economics, Elsevier, vol. 60(2), pages 317-341, December.
    17. Jesper Jensen & Thomas Rutherford & David Tarr, 2014. "The Impact of Liberalizing Barriers to Foreign Direct Investment in Services: The Case of Russian Accession to the World Trade Organization," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 6, pages 125-149, World Scientific Publishing Co. Pte. Ltd..
    18. Joseph F. Francois, 1990. "Trade in Producer Services and Returns Due to Specialization under Monopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 109-124, February.
    19. Smith, Alasdair & Venables, Anthony J., 1988. "Completing the internal market in the European Community : Some industry simulations," European Economic Review, Elsevier, vol. 32(7), pages 1501-1525, September.
    20. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    21. Levy, Santiago & van Wijnbergen, Sweder, 1995. "Transition Problems in Economic Reform: Agriculture in the North American Free Trade Agreement," American Economic Review, American Economic Association, vol. 85(4), pages 738-754, September.
    22. Schiff, Maurice & Wang, Yanling & Olarreaga, Marcelo, 2002. "Trade-related technology diffusion and the dynamics of North-South and South-South integration," Policy Research Working Paper Series 2861, The World Bank.
    23. Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
    24. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
    25. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 647-678.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tarr, David G., 2013. "Putting Services and Foreign Direct Investment with Endogenous Productivity Effects in Computable General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 303-377, Elsevier.
    2. Jesper Jensen & David Tarr, 2014. "Deep Trade Policy Options for Armenia: The Importance of Trade Facilitation, Services and Standards Liberalization," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 19, pages 453-508, World Scientific Publishing Co. Pte. Ltd..
    3. World Bank, 2016. "Assessing the Impact of WTO Accession on Belarus," World Bank Publications - Reports 24698, The World Bank Group.
    4. Balistreri, Edward J. & Olekseyuk, Zoryana & Tarr, David G., 2016. "The Impact of WTO Accession and Complementary Structural Reforms on the Economy of Belarus: A Quantitative Evaluation," Conference papers 332696, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Georges, Patrick & Mérette, Marcel, 2011. "Trade Diversification Away from the U.S. or North American Customs Union? A Review of Canada’s Trade Policy Options," Conference papers 332084, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Balistreri, Edward J. & Jensen, Jesper & Tarr, David, 2015. "What determines whether preferential liberalization of barriers against foreign investors in services are beneficial or immizerising: Application to the case of Kenya," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-134.
    7. Balistreri, Edward J. & Rutherford, Thomas F. & Tarr, David G., 2009. "Modeling services liberalization: The case of Kenya," Economic Modelling, Elsevier, vol. 26(3), pages 668-679, May.
    8. Jensen, Jesper & Tarr, David G., 2010. "Regional trade policy options for Tanzania : the importance of services commitments," Policy Research Working Paper Series 5481, The World Bank.
    9. Christen, Elisabeth & Francois, Joseph & Hoekman, Bernard, 2013. "Computable General Equilibrium Modeling of Market Access in Services," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 1601-1643, Elsevier.
    10. Tarr, David, 2012. "Impact of services liberalization on industry productivity, exports and development : six empirical studies in the transition countries," Policy Research Working Paper Series 6023, The World Bank.
    11. Edward J. Balistreri & Zoryana Olekseyuk & David G. Tarr, 2017. "Privatisation and the unusual case of Belarusian accession to the WTO," The World Economy, Wiley Blackwell, vol. 40(12), pages 2564-2591, December.
    12. Balistreri, Edward J. & Tarr, David G., 2020. "Comparison of deep integration in the Melitz, Krugman and Armington models: The case of The Philippines in RCEP," Economic Modelling, Elsevier, vol. 85(C), pages 255-271.
    13. Joseph Francois & Bernard Hoekman, 2010. "Services Trade and Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 642-692, September.
    14. Christoph Böhringer & Thomas F. Rutherford & David G. Tarr & Natalia Turdyeva, 2017. "Market Structure and the Environmental Implications of Trade Liberalization: Russia’s Accession to the World Trade Organization," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 20, pages 459-485, World Scientific Publishing Co. Pte. Ltd..
    15. Fernandes, Ana M. & Paunov, Caroline, 2012. "Foreign direct investment in services and manufacturing productivity: Evidence for Chile," Journal of Development Economics, Elsevier, vol. 97(2), pages 305-321.
    16. Bianka Dettmer, 2012. "Business services outsourcing and economic growth: Evidence from a dynamic panel data approach," Jena Economics Research Papers 2012-049, Friedrich-Schiller-University Jena.
    17. Fernandes, Ana M. & Paunov, Caroline, 2008. "Foreign direct investment in services and manufacturing productivity growth: evidence for Chile," Policy Research Working Paper Series 4730, The World Bank.
    18. Veronika Movchan & Thomas F. Rutherford & David G. Tarr & Hidemichi Yonezawa, 2023. "The importance of deep integration in preferential trade agreements: the case of a successfully implemented Ukraine–Turkey free trade agreement," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 159(1), pages 1-50, February.
    19. Balistreri, Edward J. & Tarr, David G., 2017. "Market Structure and the impact of RCEP in The Philippines: What are the Differences between Melitz, Krugman and Armington Models," Conference papers 332835, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    20. repec:zbw:bofitp:2017_002 is not listed on IDEAS
    21. Colantone, Italo & Crinò, Rosario, 2014. "New imported inputs, new domestic products," Journal of International Economics, Elsevier, vol. 92(1), pages 147-165.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:pugtwp:332153. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/gtpurus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.