| Abstract: |
The Central and South Asia regions have a long history of trade relations.
There have nearly always been movements of goods and people between the
regions, which in turn have linked their cultural and religious ties and
impacted political relations. Yet today’s trade between the two regions
remains low and significantly below regional trade in Africa, the Middle East,
Latin America and Southeast Asia. Using different measures of trade, we
estimate that inter-regional trade is only between 0.2 and 4 percent of total
trade to all destinations. Even within the regions, trade among countries
remains low. Intra-regional trade in Central Asia is less than 5 percent and
that of South Asia is 1.5 percent of trade with all countries. The present
study explores opportunities and challenges for intra- and inter-regional
trade in the Central and South Asia areas by analyzing a wide range of
channels impacting trade. Trade enhancing channels are divided into two broad
categories. The first set refers to disaggregated or product-level
characterizations of trade affecting competitiveness and complementarities
between trading partners within and between the regions. The second refers to
price, non-price and structural determinants that tend to affect all products
traded between countries. The analysis also includes a gravity model to gauge
the effect of economic growth, distance and price, non-price and structural
determinants of regional trade. The empirical results indicate that, under
existing trade patterns, the potential value of trade in the two regions is
nearly twice as large as the actual level. The finding is not surprising.
Opportunities for regional trade abound and there are numerous policy
initiatives that could be taken to help spur trade and investment in and
between the two regions. Among the possibilities are regional value chains
that could create large gains in terms of higher value additions to exports,
technologies transfers and employment generation. The analysis of different
types of value chains in this study categorizes industries according to their
value added contribution to trade, and it prioritizes industries according to
interests ranging from the diversification of industries across
resource-intensive, labor-intensive, and technology-intensive industries, as
well as the potential participation of Afghanistan due to its comparative
advantages in products exported by the industries or its geographic location
for transit trade. Based on quantitative analyzes of actual and potential
channels of trade, the study ranks the pattern of trade in terms of its
adaptability to intra- and cross-regional commerce in the Central and South
Asia regions and its predilection for regional value chains. The ranking uses
an innovative methodology that takes account of difference preference
orderings of stakeholders, such as governments and development partners that
have interests in pro-poor trade, or large companies that favor cross-border
fragmentation of production for regional and global value chains. Ratings are
classified into the following categories: trade complementarities, export
diversification, comparative advantages, structural factors, intra-industry
trade, price competitiveness, trade costs, economic growth; and regional value
chains. The baseline ratings suggest the following: First, the larger
economies have higher ratings than the smaller, less developed ones,
suggesting that size and level of development matter in the development of
regional trade. Second, among the different channels of regional trade
development, the most effective ones are (i) measures that promote price
competitiveness; (ii) intra-industry trade; (iii) trade complementarities; and
(iv) economic growth. Third, the effectiveness of country-specific measures
differ, as for example in Afghanistan, where the trade enhancing channels that
matter the most are structural factors, price competitiveness and trade
complementarities with other countries in South Asia and with Central Asia in
general. These findings have important implications for the ability of
different trade-related policies, programs and institutional mechanisms to
successfully promote greater commerce within and across the two regions. Each
of these mechanisms has costs associated with them and different types of
mechanisms can be programmed on the basis of their ease of implementation and
impact potential. The material in this study is designed in such a way as to
provide practical knowledge and methods for businesses to take advantage of
Central and South Asia regional opportunities; analytical tools for
policymakers and researchers; and policy and program recommendations for
governments and development partners. It should be of interest to businesses,
governments, international development partners, policymakers and researchers,
and others concerned with Central and South Asia’s trade and the potential for
developing value chains or so-called ‘trade in tasks’ across the two regions. |
| Keywords: |
Central Asia, South Asia, CAREC, intra-regional trade, inter-regional trade, trade complementarities, export diversification, comparative advantages, structural factors, price competitiveness, trade costs, economic growth; regional value chains, product concentration, export survival rates, product sophistication, real exchange rates, two-way trade, trade facilitation, constant-market-shares analysis bilateral trade agreements, multilateral trade arrangements, modeling regional trade, gravity models, fragmentation of production, econometric modeling of trade |