South Asia to Reap Benefits of Easing Trade, Investment Barriers

MANILA, PHILIPPINES - Removing barriers to trade and investment will help advance integration efforts in South Asia and deliver sweeping benefits to the region, a new Asian Development Bank (ADB) study shows.

The study, Intraregional Trade and Investment in South Asia, prepared by ADB, in partnership with the Australian Agency for International Development (AusAID), was one of four new publications on South Asia launched at ADB headquarters in Manila today.

South Asia has taken several steps to strengthen regional economic ties, including the establishment of a South Asian Free Trade Area (SAFTA) in 2006. But it remains one of the least integrated regions in the world, with intra-regional trade still hamstrung by prohibitive tariffs and duties, cumbersome border regulations and other restrictions.

The study, which uses an updated econometric model and taps industry and country data,notes that cutting barriers to trade will deliver a broad range of economic and welfare benefits across the region. This includes an expansion of South Asia’s key clothing and textiles sector, which is expected to increase women’s employment and decrease the gender wage gap.

To realize these gains, countries will need to put aside historical political grievances and take steps to remove impediments to trade, market access and foreign direct investment. This should include reducing both tariff and especially nontariff trade barriers, expanding the scope of SAFTA to include trade in services and investment, and focusing on major industries, such as textiles - where the region has a strong comparative advantage - to demonstrate the broader benefits of reform.

“In addition to reaping benefits of removing trade and investment barriers, South Asia must look toward the immense potential of regional cooperation and integration in other areas, including the financial sector,” said Kunio Senga, Director General of ADB’s South Asia Department.

The potential for closer subregional ties to support growth, development and poverty reduction is highlighted in ADB's South Asia Economic Report, which examines recent developments and challenges in the financial sector.

The study points out that financial sector reforms, including the development and deepening of capital markets, can have positive benefits regionwide by increasing investment and savings opportunities, and by expanding the range of financial services, including microfinance for the poor.

To address current sector weaknesses it suggests a range of actions that include adopting prudent fiscal policies, strengthening the legal framework for financial services, including microfinance, reforming and privatizing state-owned financial institutions, lifting non-prudential and capital account restrictions, and improving accounting standards.

A third publication Sanitation in India: Progress, Differentials, Correlates, and Challenges, confirms progress made in the sector over the past decade, but notes that unmet needs remain sizeable and access to universal sanitation is still hindered by a range of social, cultural, geographic and economic disparities. To bridge these gaps, the study recommends focusing on disadvantaged groups, and targeting states that have consistently underperformed.

The fourth publication, Countries in Transition, reviews the emerging political economy of Bangladesh, Bhutan, the Maldives and Nepal, who have all held recent elections and share similar concerns, including fallout from the global financial crisis that has hurt exports and remittances. To address challenges, a new generation of reforms will be required to ensure greater accountability of public institutions, to improve economic management, to make the political process more inclusive, and to support the mainstreaming of development.