The Imperfect Substitutes Model in South Asia

Abstract

In large number of circumstances, trade policy modellers turn to partial equilibrium modelling in an imperfect substitutes framework. This article develops a formal representation of this imperfect substitutes model and applies it to trade liberalization within the negative list between Pakistan and India following Pakistan’s decision to grant most favoured nation (MFN) status to India. It provides estimates for ranges of output and welfare effects for a number of sectors of interest. It sets these results within the history of Pakistan–India trade and the political economy of the negative list.