Media Type

Lecture

Publication Date

2-5-2013

Description

India and Pakistan, the two largest economies in South Asia, have enjoyed very little trading relations for past four decades. The intransigency between these two countries has had deleterious effect on intra-regional trade flows within the South Asia region. Consequently, the region remains the least integrated region of the world. The foregone benefits to the people inhabiting these countries of South Asia are substantial. The correlation between trade, economic. growth and poverty reduction has become quite evident in the last few decades. Unlike export pessimism literature, the ascendancy of China, a developing country, that despite having a large internal market of 1.2 million consumers relied upon exports, has renewed belief in the validity of trade as an engine of growth. South Asia was a single large unified market for goods and services until a few decades ago with sound infrastructure in form of railways, roads and ports. The newly independent countries of South Asia also inherited common legal, institutional and administrative systems. Although subsequent historical evolution led to some divergences but the elements that bound them for trade, were still strong. On the other hand, East Asia with countries having such diverse background and very little in common historically has become the most integrated region second after the European Union. There was almost a consensus among academic economists in both India and Pakistan that normalization of trade relations would bring substantial economic benefits evenly. But the trade still didn't take off. Political tension and rivalry between the two countries stood out as the main explanatory variable.

Notes

A distinguished lecture was delivered at the Indian Council for Research on International Economic Relations (ICRIER), New Delhi, on February 5, 2013.

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