CAN INDIA PROMOTE ECONOMIC GROWTH OF OTHER SAARC MEMBERS THROUGH TRADE? AN EMPIRICAL ANALYSIS

Abstract

South Asia is the fastest growing region in the world today. Since the formation of the SAARC, trade between India and other SAARC countries has increased rapidly. However, SAARC members had been more open to the rest of the world in terms of trade rather than to India. Using the Neo-Classical growth accounting equation, this study conducted an empirical analysis to investigate whether trade with India can promote economic growth of other SAARC members. Covering the period from 1990 to 2017, the Auto Regressive Distributive Lag (ARDL) model Bounds Testing Method was used to study the long run and short run relationship between trade and growth variables. The results indicated that trade with India has no significant impact on economic growth of other SAARC members in the long run or short run. On the other hand, trade with the rest of the world has a significant positive impact on economic growth of these countries both in the long run and short run. The results indicate that the largest country in South Asia does not contribute to economic growth of its neighbours. This doesn’t mean that other South Asians should stop trading with India. But the bottlenecks in existing trade agreements with India need to be identified and solved. In the meantime, trade relationships with other countries beyond the region should be improved