Can SAFTA be a Successful Free Trade Bloc? : Evidence from Asian FTAs. Dr. Sandeep Kaur Bhatia Assistant Professor, Centre for Economic Studies, Central University of Punjab, Bathinda.
Waves of Regional Bloc North- North Wave South- South Wave: How far it is successful? North- South Wave Table 1 : Number of FTAs Enforced in Asia RTAs Bilater. Plurilateral Country-RTAs Total al Intraregional South- 16 3 3 22 South RTAs Interregional South- 13 1 0 14 South RTAs Intraregional North- 5 0 0 5 South RTAs Interregional North- 14 2 4 20 South RTAs Total 48 6 7 61
Low Intra- SAFTA Trade Table 2: Intra trade of Region/Trade Blocs (% of Total Exports with in Bloc) Blocs 1995 2000 2005 2010 2011 2012 EU 65.9 67.5 67.6 64.8 63.9 61.8 NAFTA 46.0 55.7 55.7 48.7 48.3 48.5 APTA 7 7.9 11 12.1 11.7 11.1 ASEAN 24.9 23.0 25.3 25.0 25.0 26.0 ECO 8.1 5.7 7.4 9.6 9.6 11.1 SAFTA 5.1 4.6 6.8 6.1 5.5 5.8 GCC 6.8 4.8 4.9 5.4 5.1 5.0 Source: World Bank, World Development Indicators: Various Issues.
Complementarities in Production and Trade between ASEAN Countries Existence of complementarities in production Existence of complementarities in trade Trade intense with various countries RCA in various Commodities Spaghetti Bowl of Asean
Complementarities in Production and Trade between SAFTA Countries Increasing share of Services Dominance of Manufactures import Lack of complementarities in TRADE R CA in same section of Commodities Heavy Dependence on One or two Markets Spaghetti Bowl of SAFTA: Is a problem?
Pruning Sensitive List Sensitivity List: declining the number of goods l to increase trade liberalization. Various Boxes : The reporting country is more competitive than the counterpart exporting country( yellow box), competitiveness of both the reporting and the exporting country for such commodities at parity( green box), both the countries are not competitive at all(red box) and the exporting country is more competitive( blue box). Country Afghanistan. Table : No. of Categories of Commodities to be retained on the Sensitive List Banglade sh Bhuta n Indi a Maldiv es 3 3 Nep al Pakista n Sri Lanka 3 3 3 46 8 5 6 9 3 6 12 3 9 45 13 3 16 28 2 8 2 1 1 5 13 13 1 7 6 3 6 16 8 13 9 3 20 6 13
Gravity Model of Trade L n E ijt = + 1 L n Y it + 2 L n Y jt + 3 L n Pop it + 4 L n Pop jt + 5 Rer it + 6 Rer jt + 7 L n Dis ij + 8 or ij + 9 Lan ij +e ijt L neijt= + 1LnYit+ 2LnYjt+ 3LnPopit+ 4LnPopjt+ 5Rerit+ 6Rerjt + 7LnDisij + 8 orij + 9Lanij + β10 Bilijt +β11(bilijt Spgijt)+ e ijt β10 = the trade creating effect of a PTA β11= the effect of the spaghetti bowl variable on the PTA effect (for observations where both the PTA-dummy and the spaghetti bowl dummy equals 1) E ijt = Export flows in year t from country I to country j (SAARC countries); Y it = Country i s GDP in year t (measured in US $ millions); Y jt = Country j s GDP in year t (measured in US $ millions); Pop it = Country i s population in year t (measured in thousands); Pop jt = Country j s population in year t (measured in thousands); Rer it = Real exchange rate between the exporter s currency and the US $ in period t; Rer j = Real exchange rate between the importer s currency and the US $ in period t; Dis ij = Distance between country i and j (Kms); Bor ij = Border is a dummy variable for pair of countries sharing common border; and Lan ij = This is also a dummy variable for a pair of countries sharing common language. L n = Natural logs It is hypothesized that 1, 2, 5, 8, 9, 10 >0 10 >0 ; 3, 4 <0 or >0 and 6, 7, 11 < 0.
Variable Results of Gravity Model Restricted/ Pooled Estimation Fixed Effects Estimation Random Effects Estimation Coefficient Z-statistics Coefficient Z-statistics Coefficient Z-statistics Constant -16.93** -29.83-17.70* -2.11-17.95** -11.45 Gross Domestic 0.24** 6.26 1.11** 5.54 0.44** 5.58 Product of Exporter Country Gross Domestic Product of Importer Country 0.17** 4.57-0.17-0.85 0.31** 3.93 Population of Exporter Country 0.99** 16.91 1.44 1.53 0.81** 5.05 Population of 0.67** 11.48-0.27-0.29 0.61* 3.76 Importer Country Real Exchange 0.12 1.17 0.86** 3.09 0.17 1.13 Rate of Exporter Country Real Exchange 0.26** 2.49-0.91** -3.24-0.07-0.54 Rate of Importer country Bilateral 0.66** 3.26 0.21 1.35 0.22 1.50 Bowl 0.21 0.87 0.001 0.01 0.05 0.35 R 2 0.67 0.84 0.45 Restricted F-test 36.05**
Exporter Export Potential between SAARC Members using (P-A)* Approach (US $ Millions) Bangladesh India Nepal Pakistan Sri Lanka Importer Bangladesh - -251.334-7.80 37.98 2.97 India -47.90 - -63.41-9.02-62.58 Nepal -1.56-101.51 - -0.06-0.29 Pakistan 4.03-300.458 0.09-25.04 Srilanka -2.41-327.655-1.51 21.19 - Export Potential between SAARC Members using (P/A)* Approach (US $ Millions) Exporter Bangladesh India Nepal Pakistan Sri Lanka Importer Bangladesh - 1.12 5.89 1.12 1.11 India 1.41-2.50 1.15 1.27 Nepal 2.17 1.12-1.73 2.88 Pakistan 1.09 2.18 2.23-1.33 Srilanka 1.91 1.13 5.54 1.07 -
Conclusions Exhausted SAFTA s intra- trade Potential Little scope for reduction in sensitive list Boost to increase intra trade in various services Generation of complementarities in merchandise trade.