Welfare Impacts of Preferential Trade Liberalization in South Asia

Abstract

Focusing on the global trading relationship aggregated at the level of 15 regions and 10 sectors, we investigate in this paper the welfare effects of preferential trade liberalisation in South Asia from several simulation perspectives. The static version of the Global Trade Analysis Project (GTAP) model shows that countries that are initially more protected (such as India) are likely to capture the lion’s share of the gain from the liberalization scheme. Countries that maintain status quo are the losers; prominent among them are the EU 25 and the North America region. However, these results are dramatically changed in the dynamic version of the GTAP model. In terms of deviations from the baseline scenario, the regional integration policy in South Asia turns out to be net welfare reducing for both the region and the rest of the world.