Trade flows between SAFTA member countries: an empirical analysis

Abstract

The South Asian Free Trade Agreement (SAFTA) of the SAARC is the principal regional trade agreement in South Asia. This thesis empirically examines bilateral trade flows between SAFTA member countries. The empirical analysis is executed using the gravity model to estimate the relative magnitude of bilateral trade flows between SAFTA member countries. A panel dataset presenting bilateral trade flows among SAFTA member countries and between SAFTA countries and non-SAFTA countries is used. The empirical gravity equations are estimated in the log-linear forms and estimated in multiplicative forms using the PPML estimation method. The results show that the magnitudes of trade flows among SAFTA member countries significantly fall below the magnitudes of trade flows between SAFTA and non-SAFTA member countries, ceteris paribus. They indicate that SAFTA member countries should adopt policies to reduce the significance of para-tariffs, sensitive items list, and to improve bilateral infrastructure and business networks, and settle conflicts.