Trade Response to Preferential Liberalization

This study investigates the trade pattern, potential and effects of preferential liberalization of some emerging Asian countries, viz., India, Thailand, Bangladesh, and Sri Lanka, by forming a comparatively new regional group called Bay of Bengal for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). The study also takes into account the trade effects of other members of the bloc: Myanmar, Nepal and Bhutan. To examine the trade pattern of these countries, it adopts standard and stochastic frontier augmented panel gravity model. It also This study finally examines the possible effects of an FTA within BIMSTEC by trade policy simulation tools: SMART and Global Trade Analysis Project (GTAP) models. The results reveal that imports of BIMSTEC countries follow the Linder hypothesis, while exports can be explained by Heckscher-Ohlin-Samuelson theorem. Also, Bangladesh would incur a net welfare loss and a negative growth of real GDP by joining the FTA. The bloc would end up with a trade deficit. Despite some country-and sector-specific negative effects, the impact on overall economic growth would be positive by initiating an FTA.