Building for Trade
ADBI series on Asian Economic Integration and Cooperation
Edited by Douglas H. Brooks and David Hummels
Chapter 8: Trade Transportation Costs in South Asia: An Empirical Investigation
* Prabir De INTRODUCTION 1. As South Asia began to approach its second era of regional cooperation, the region witnessed a considerable rise in economic growth and regional trade.1 Accompanying this growth has been an increase in demand for infrastructure services, for production, consumption and international trade purposes. In the coming years, South Asian merchandise exports, recorded under the provisions of the South Asia Free Trade Agreement (SAFTA), are expected to reach US$14 billion by the end of this decade, from the present volume of US$8 billion.2 A failure to respond to this demand will cause bottlenecks and act as a check on South Asian trade from growing to its full potential – regionally and otherwise. Realizing the urgent need for improved trade and transport facilitation for enhancing South Asian trade, the Heads of the South Asian Association for Regional Cooperation (SAARC) countries have been emphasizing the potential of an integrated transport system for the region.3 They have stressed that higher intraregional trade will not be achieved until and unless the physical infrastructure and appropriate customs clearance and other facilitation measures, including multimodal transport operations, are in place. They also point out that in this eﬀort, uninterrupted overland connectivity is equally important. A substantial theoretical and empirical literature exists on the impact of poor infrastructure and trade facilitation measures on external trade and on income in developing countries. In general, trade liberalization and trade facilitation for external trade induce a substitution eﬀect in consumption and production by changing...
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