Trade Agreements in South Asia : Towards a Successful Story in the Developing World

This paper quantifies the trade creation effects of South Asia’s trade agreements within theregion and with the rest of the world. The paper uses an extensive database of bilateral trade covering themanufacturing, agriculture, and service sectors in 190 countries over 1990–2015. The estimates of variousspecifications of a structural gravity model, including domestic trade flows, capture the potential heterogeneouseffects. The main finding is that these effects are in general stronger for trade agreements signed by South Asiancountries and even stronger in the case of intraregional agreements. The effects of free trade agreements varysubstantially among countries and sectors and between final and intermediate goods. The paper shows that the tradepolicy implemented in South Asia in the previous decades has been successful, but at the same time the results pointtoward the existence of clear missing opportunities for the region. The opportunities lay in (i) better backwardintegration with the rest of the world to improve efficiency and help strengthen exports, and (ii) further deepening ofintraregional agreements to continue making progress in regional integration.