The present paper attempts to analyze the deeper trade integration prospects among South Asian (SA) and South East Asian (SEA) nations using general equilibrium analysis. Recent years have seen disruptions in global trade due to pandemics and wars. This calls for greater cooperation among nations that are highly vulnerable to external shocks. Most of the existing literature deals with the issue of integration using standardized CGE modeling with perfect competition assumption and full employment closures. In the present study, we relax the full employment assumption in the standard GTAP model to introduce the possibilities of meaningful regional welfare gains due to trade integration. By using the GTAP 10 database for the aggregation scheme and applying underemployment closure, the model has been made more realistic. The simulation scenario one is ambitious, where tariff barriers are reduced to zero, while non-tariff barriers (NTB) are reduced by 25 percent. The second simulation scenario deals with a staggered reduction in tariffs for agriculture and manufacturing, registering a halving of the existing tariff barriers, while NTBs are reduced by 10 percent. The reveal promising positive welfare effects for the region as a whole and terms of trade seems to improve. The manufacturing sector in South Asia and Extraction and Processed Food sector in South-East Asian region seem to have maximum gain. This integration helps in finding out robust solutions to the long held issues of relatively stagnant manufacturing sector. The backward linkages of GVCs in these regions can be shifted for more lucrative sources and destinations for trade. The welfare decomposition of the simulations prove that the gains to the endowments are more significant than the gains in allocative efficiency, suggesting that the natural resources in the regional integration are put to more and efficient use. These findings pave the way for larger interest and efforts in bringing about deeper integration while addressing the call for reducing structural and infrastructural impediments.
Khatir et al. (Sat,) studied this question.