Analyzing Potential Effects of Preferential Liberalization in Some Asian Emerging Economies

BIMSTEC, a regional grouping of South and Southeast Asian countries, is heading towards an FTA for greater economic integration. The present paper examines the ex ante effects of the iniative by adopting SMART and GTAP models. Based on estimated export supply elasticity, the results of SMART simulation reveal that the highest net trade effect takes place for India, the biggest economy in the bloc, followed by Bangladesh for tariff elimination. The two countries also derive substantial welfare gains. The proportionate revenue loss is remarkably higher for smaller countries such as Nepal, Myanmar and Bangladesh. GTAP simulation suggests that Bangladesh incurs a net welfare loss by joining the FTA. The overall intra-bloc export is likely to increase. These imply the need for designing the compensation mechanism and technical support properly for the smaller economies to offset the possible adverse effects.