Economic impact of the proposed Bangladesh–India FTA: potentials and realities

Abstract

Purpose – The purpose of this paper is to investigate the potential economic effects of the proposed Bangladesh-India free trade agreement (FTA). Design/methodology/approach – The authors have used the computable general equilibrium (CGE) analysis of Global Trade Analysis Project (GTAP) database. The analysis highlights the possible costs and benefits of the two nations within three different scenarios. Under Scenario I all bilateral import tariffs between Bangladesh and India are removed; Scenario II represents the setting where Bangladesh cuts its all tariffs by 75 and in Scenario III Bangladesh cuts tariffs by 50 percent. India cuts all their tariffs by 100 percent in all three scenarios. Findings – The findings indicate that India may gain more in terms of welfare and real GDP via the improved terms of trade while Bangladesh is going to have welfare loss, but if Bangladesh is able to make a preferential FTA like Scenario III with India its welfare, real GDP and exports will be increased substantially. Originality/value – This paper is the first-ever attempt to estimate the effect of the proposed Bangladesh-India FTA using CGE analysis of GTAP database version 7.