Closer economic ties to help South Asia tap full economic potential

28 Nov '06

3 min read

With complementary export baskets, South Asian economies can raise intra-industry trade and eventually develop a regional supply chain with India, already a key service center for the global economy, as its main assembly point and export window to the rest of the world.

To achieve this goal, South Asia needs massive investment and rapid elimination of trade barriers to ensure that production specialization in each economy will be driven by its comparative advantages.

Mr. Nag said South Asia can benefit from the experiences of closer regional cooperation and integration in East Asia. “Trade liberalization, tariff reductions, increases in foreign investment and declining transport costs have all contributed to a more integrated East Asian economy and created significant new opportunities for global businesses,” he said.

Intraregional trade now accounts for 55 percent of East Asia's total trade, comparable to that of the European Union before the 1992 Maastricht Treaty, he pointed out. In contrast, South Asia's intraregional trade accounts for just 5 percent of its total trade.

Regional cooperation and integration would serve as a powerful instrument in promoting a better subregional and national growth balance, addressing some serious poverty and inequity issues, Mr. Nag pointed out. And it will be a win-win situation if South Asia can optimize the energy supply mix of the region, given that the future energy needs in India alone are expected be enormous.

“Considering the different stages of countries' development, the next steps will necessarily be different within and among the countries in South Asia,” said Mr. Nag. “To my mind, what we need is a 'multi track, multi speed' approach to enhancing the subregional cooperation agenda in this region.”

Asian Development Bank

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