Regional trade: harnessing self-interest

That Pakistan, and her south Asian neighbours, will benefit immensely from regional trade has almost become like a maxim. Total regional trade potential is estimated to be around $81 billion, as against the current number of $26.8 billion (India being the driver with about $20 billion), according to a Unescap study cited by Dr Nagesh Kumar, Director Unescap, at a regional trade conference organised in Dubai.

He also cited estimates of welfare gains to be had if the region starts trading. Yet while research estimates like these keep emerging every now so often, nobody seems to listen; and surely not Pakistan and India. Tragic incidents or not, the two leading critical drivers of south Asian trade have no love lost for bi-lateral or regional trade. This makes one wonder if there is really so much trade potential then why haven’t business groups, power brokers, and so forth in each country haven’t lobbied with their respective states to facilitate regional trade. Surely when businesses raise hue and cry about ‘ease of doing business’ citing World Bank rankings, politicians start chasing those targets like blind rabbits, whether it is

Modi in India or Sharif or Khan in Pakistan. Likewise, when businesses want an FTA or a change in FTA, they leave no stone unturned until they get what they want. Could it be the case that leading business sectors and powerful businesses within those sectors do not see value in regional trade, and specifically Pak-India trade in so far as those two countries are concerned? In some sense it is true. For instance, Pakistan’s auto and pharma sector players have been quite vocal that they don’t support the idea of Pak-India trade.

But isn’t it also true that no one has really calculated sector wise trade potential in the region (or sector wise Pak-India trade potential) and estimates of the welfare gains that might ensue? Broad aggregates of trade potential and welfare gains don’t provide any basis to interest groups within different business sector to lobby for change. And it’s a difficult change to be had, which requires more robust analyses and evidence at disaggregated level.

From think tanking perspective, researchers should analyse the trade potential and welfare gains that may ensue to the business interest of the political and non-political powerful state actors who are currently against Pak-India trade in particular, and regional trade in general.

Such analyses of sectoral benefits or benefits flowing to business interest of state actors shouldn’t be glossy. It’s one thing to say total trade potential is about $81 billion which may or may not be trade diversion or trade creation; who’s to know. It’s another thing to conduct sound sector or business specific analyses that could become a basis for a change of heart; after all Pakistan cannot import textile machinery from Afghanistan and won’t find enough market in Bhutan for its top quality and priciest home textile.

In short, while trade is a good in itself and one of the key drivers of global growth that shouldn’t require too much convincing beyond common economic reasoning, reliable estimates of dollar earnings flowing to a single sector or power brokers can be more convincing for them to lobby for change in state policy than country wide trade potential. Because such sectoral estimates currently do not exist, regional trade enthusiasts have not been able to harness the power of self-interest. Economists of all the people should know the power of self-interest and incentives.