Regional Integration and Trade in South Asia: Measuring the Extent of Intra-Regional Trade and Orientation

In recent times, considerable attention has been directed towards the significance of regional trade agreements. Notably, in cases such as NAFTA and ASEAN, the share of intra-regional trade can reach up to 40%. This raises the question of whether regional integration in South Asia (SAARC) holds comparable importance. Preliminary investigations indicate that the share of intra-regional trade within SAARC countries remains low and has stagnated over the past 15 years. This paper explores the reasons behind the stagnation, examining whether political or economic factors are impeding trade growth. Additionally, it assesses the regional trade orientation of SAARC compared to ASEAN and NAFTA. The study employs a gravity model of trade to analyze the impact of GDP and distance on exports for both NAFTA and SAARC. Furthermore, the paper evaluates the Regional Orientation Index (ROI) against the Revealed Comparative Advantage (RCA), revealing no significant relationship between ROI and RCA, except for a few commodities where SAARC exhibits both higher ROI and RCA greater than one.