Exploring India's Trade Potential and Commodities for Future Trade with SAARC Economies: A Quantitative Analysis Using Augmented Gravity Model of Trade

Abstract

Purpose: This study aims to explore the factors affecting trade and determine the potential trade prospects between India and other South Asian Association for Regional Cooperation (SAARC) economies.

Methodology: The study employed the augmented gravity model, speed of convergence, along with Revealed Comparative Advantage (RCA) and Revealed Import Dependence (RID) indices to analyze trade determinants and identify trading potential and viable commodities for trade between the countries. 

Findings: The results from the panel gravity model of trade reveal that most variables exhibit the expected sign and are statistically significant, confirming the applicability of the gravity model of trade. The speed of convergence indicates that during the pre-SAFTA period, India has untapped trade potential with five SAARC members (Bangladesh, Maldives, Nepal, Pakistan, and Sri Lanka), while experiencing overutilized trade potential with Bhutan. However, in the post-SAFTA period, India demonstrated underutilized trade potential with all SAARC members. Moreover, in the comparison of India's RCA with RID of Bangladesh, Nepal, Pakistan, and Sri Lanka, commodities like food and live animals, raw materials, and manufactured goods stand out as particularly suitable for trade between India and these specific economies. 

Originality: To the best of the authors' knowledge, there is a lack of studies regarding India's trade potential and the identification of commodities with future trade prospects among SAARC economies. Therefore, our study aims to address this gap and make a contribution to the existing literature in this field.