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Through the agreement on the South Asian Free Trade Area (SAFTA), South Asian countries are now looking towards deeper integration of the region. Nevertheless, South Asia is far from realising its full potential. The econometric evidence provided in this article strengthens the existing linkage of trade costs, transit and trade flows; the higher the transaction costs between each pair of trade partners, the less they trade. The analysis given in this article shows that improved trade facilitation would enhance regional trade very much the same way tariff liberalisation does. This article also suggests that an important means of promoting regional trade could be improved trade facilitation, which will not only enhance regional trade but will also strengthen the trade capacity of the landlocked countries.
Prabir De (Thu,) studied this question.