What Does MFN Trade Mean for India and Pakistan? Can MFN be a Panacea?

De, Prabir; Raihan, Selim; Ghani, Ejaz

What Does MFN Trade Mean for India and Pakistan? Can MFN be a Panacea?

Autores

De, Prabir

Raihan, Selim

Ghani, Ejaz

Editor

World Bank, Washington, DC

Descripción

India and Pakistan, the two largest economies in South Asia, share a common border, culture and history. Despite the benefits of proximity, the two neighbors have barely traded with each other. In 2011, trade with Pakistan accounted for less than half a percent of India's total trade, whereas Pakistan's trade with India was 5.4 percent of its total trade. However, the recent thaw in India-Pakistan trade relations could signal a change. Pakistan has agreed to grant most favored nation status to India. India has already granted most favored nation status to Pakistan. What will be the gains from trade for the two countries? Will they be inclusive? Is most favored nation status a panacea? Should the granting of most favored nation status be accompanied by improvements in trade facilitation, infrastructure, connectivity, and logistics to reap the true benefits of trade and to promote shared prosperity? This paper attempts to answer these questions. It examines alternative scenarios on the gains from trade and it finds that what makes most favored nation status work is the trade facilitation that surrounds it. The results of the general equilibrium simulation indicate Pakistan's most favored nation status to India would generate larger benefits if it were supported by improved connectivity and trade facilitation measures. In other words, gains from trade would be small in the absence of improved connectivity and trade facilitation. The idea of trade facilitation is simple: implement measures to reduce the cost of trading across borders by improving infrastructure, institutions, services, policies, procedures, and market-oriented regulatory systems. The returns can be huge, even with modest resources and limited capacity. The dividends of trade facilitation can be shared by all.

Palabras clave

ACIDS, ADVANCED COUNTRY, AGGREGATE CONSUMPTION, AGRICULTURAL PRODUCTS, AGRICULTURE, AIR, AIR ROUTES, AIR TRANSPORT, AIR TRAVEL, AIRCRAFT, APPAREL, AVERAGE TARIFF, AVERAGE TARIFFS, BARRIER, BARRIERS TO TRADE, BASE YEAR, BENEFITS OF TRADE, BENEFITS OF TRADE FACILITATION, BILATERAL FREE TRADE AGREEMENT, BILATERAL TRADE, BILATERAL TRADE AGREEMENTS, BILATERAL TRADE RELATIONS, BORDER CROSSINGS, BORDER INFRASTRUCTURE, BORDER TRADE, BOTTLENECKS, CHAMBERS OF COMMERCE, COMMODITIES, COMMODITY, COMPARATIVE ADVANTAGE, COMPARATIVE ADVANTAGES, COMPETITIVENESS, CONGESTION, CONNECTIVITY, CONSTANT ELASTICITY OF SUBSTITUTION, CONSTANT RETURNS TO SCALE, CONSUMERS, CONSUMPTION SUBSIDIES, COST ANALYSIS, CROSS-BORDER ISSUE, CROSS-BORDER TRANSACTIONS, CUSTOMS, CUSTOMS AUTHORITIES, CUSTOMS OFFICIALS, CUSTOMS PROCEDURES, DEBT, DEMOGRAPHIC, DEVELOPING COUNTRIES, DEVELOPMENT POLICY, DIGITAL SIGNATURE, DIVIDEND, DIVIDENDS, DOMESTIC ECONOMY, DOMESTIC MARKET, E-COMMERCE, ECONOMIC COOPERATION, ECONOMIC DEVELOPMENT, ECONOMIC INTEGRATION, ECONOMIC POLICY, ECONOMIC RELATIONS, ECONOMIC STRENGTH, ECONOMIES OF SCALE, ELASTICITIES, ELASTICITY, ELASTICITY OF SUBSTITUTION, ELASTICITY VALUE, EQUILIBRIUM, EXPORT BASES, EXPORT SECTORS, EXPORT SHARE, EXPORT SUBSIDIES, EXPORTERS, EXPORTS, FACTORS OF PRODUCTION, FINANCIAL CRISIS, FINANCIAL INSTITUTIONS, FORECASTS, FOREIGN INVESTMENT, FREE TRADE, FREE TRADE AGREEMENT, FUELS, FUTURE RESEARCH, GDP, GENERAL EQUILIBRIUM, GENERAL EQUILIBRIUM MODEL, GLOBAL COMPUTABLE GENERAL EQUILIBRIUM, GLOBAL INVESTMENT, GLOBAL TRADE, GLOBAL TRADE ANALYSIS, GLOBALIZATION, GRAVITY ESTIMATES, GRAVITY MODEL, GRAVITY MODEL APPROACH, GRAVITY MODELS, HARMONIZATION, HIGH TARIFFS, HIGHWAY, IMPORT BANS, IMPORT COSTS, IMPORT DUTIES, IMPORT PRICE, IMPORT PRICES, IMPORT TARIFF, IMPORT TAXES, IMPORTS, IMPORTS OF TEXTILES, INCOME LEVELS, INCOME TAX, INDUSTRIAL PRODUCTIVITY, INDUSTRY TRADE, INEFFICIENCY, INFORMATION FLOWS, INFORMATION SYSTEM, INFRASTRUCTURE DEVELOPMENT, INFRASTRUCTURE PROJECTS, INTELLECTUAL PROPERTY, INTERMEDIATE INPUTS, INTERNATIONAL ECONOMICS, INTERNATIONAL TRADE, INTRAREGIONAL TRADE, MARKET ACCESS, MARKET SIZE, METAL PRODUCTS, MODE OF TRANSPORT, MOST FAVORED NATION, MOTOR VEHICLES, NATURAL RESOURCES, NEW MARKETS, NEW PRODUCTS, NON-TARIFF BARRIERS, ONLINE BANKING, OUTPUT, OUTPUTS, PAYMENT SYSTEMS, PER CAPITA INCOME, PER CAPITA INCOMES, PERFECT COMPETITION, PETROLEUM PRODUCTS, PORT OF ENTRY, PORTFOLIO, POSITIVE EFFECTS, PREFERENTIAL RATE, PREFERENTIAL TRADE, PREFERENTIAL TRADE AGREEMENTS, PREFERENTIAL TREATMENT, PRICE BANDS, PRIMARY FACTORS, PROTECTIONIST, QUANTITATIVE RESTRICTIONS, RAIL, RAIL CROSSING, RAIL NETWORKS, RAIL TRAVEL, RAILWAY, RAILWAYS, REAL GDP, REGIONAL INTEGRATION, REGIONAL TRANSPORT, REGIONALISM, REGULATORY SYSTEMS, ROAD, ROAD NETWORK, ROUTE, SAVINGS, SOURCING, STATE BANK, TARIFF BARRIERS, TARIFF CHANGES, TARIFF DISPERSION, TARIFF RATES, TAX, TAX REVENUES, TECHNICAL BARRIERS, TIRES, TRADE AGREEMENT, TRADE BALANCE, TRADE CLASSIFICATION, TRADE COOPERATION, TRADE COSTS, TRADE CREATION, TRADE DEFICIT, TRADE DIVERSION, TRADE DIVERSION EFFECT, TRADE FACILITATION, TRADE FINANCE, TRADE FLOWS, TRADE IN GOODS, TRADE LIBERALIZATION, TRADE LOGISTICS, TRADE PARTNERSHIP, TRADE POLICIES, TRADE PROMOTION, TRADE REGIME, TRADE REGIMES, TRADE RELATION, TRADE RELATIONS, TRADE ROUTES, TRADE SURPLUS, TRAFFIC, TRAINS, TRAMWAY, TRANSACTION COST, TRANSACTION COSTS, TRANSACTIONS COSTS, TRANSIT, TRANSIT TRADE, TRANSPARENCY, TRANSPORT, TRANSPORT EQUIPMENT, TRANSPORT FACILITATION, TRANSPORT NETWORK, TRANSPORTATION, TRANSPORTATION COST, TRANSPORTATION COSTS, TRUCKS, TRUE, UNILATERAL LIBERALIZATION, UTILITY FUNCTION, VALUE ADDED, VEHICLES, VERTICAL INTEGRATION, VOLUME OF TRADE, WELFARE GAINS, WELFARE IMPACTS, WELFARE LOSS, WTO, ZERO PROFITS