Impact of the Enlargement of APEC on South Asia: An Analysis of Trade Potential †

Abstract

APEC-South Asian trade has attracted very little attention among researchers although the APEC region has become South Asia's most important trading part ner. This article provides an analysis of the determinants of trade flows between South Asian and APEC countries, using a gravity trade model (GTM) with some extensions. The model incorporates the conventional variables (income, distance, relative prices, etc.) as well as policy related variables (tariff and non-tariff barriers). This model was also used to conduct trade policy experiments on trade liberaliza tion in the two regions. The results show that the potential for expansion of South Asia's exports to the APEC region is very limited and indicate the need for policy reforms if the region is to achieve its goal of higher exports as a vehicle for growth.