India-BIMSTEC Bilateral Trade Activities: A Gravity Model Approach

India-BIMSTEC Bilateral Trade Activities: A Gravity Model Approach

Gurpreet Kaur (Lovely Professional University, India) and Akriti Gupta (Lovely Professional University, India)
DOI: 10.4018/978-1-7998-1730-7.ch007


The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) is one of the solutions to converge the economic interests of India's Look East Policy and Thailand's Look West Policy. Its objective is to integrate the regions on both sides of the Bay of Bengal. The development of BIMSTEC countries is indispensable for the forward march of Asia as a whole. This chapter analyzes the India-BIMSTEC trade activities after the establishment of BIMSTEC bloc. Gravity model and Auto-Regressive Integrated Moving Average (ARIMA) are used. The model estimates the sets of regression equations to measure the effects of regional trade agreements using ordinary least squares with nation dummies to capture country-specific fixed effects. The study reveals that all coefficients of regional dummy variables are mostly positive and significant, indicating the agreements that tend to enhance more trade than bilateral trade agreements. The authors state that based on India's trade with the BIMSTEC region, there exists a scope for intraregional trade in the future.
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The most significant feature in the economic development activities of BIMSTEC is the proposed Free Trade Area (FTA) amongst the member countries which expected to expand it later to involve other countries as well as other regional trading blocs. At the BIMSTEC Economic Ministerial Meeting held on August 1988, there was concluded a decision that BIMSTEC should aim to develop a free trade agreement. At the BIMSTEC Trade, Commerce and Economic Ministerial meeting held on February 8, 2004, in Phuket, Thailand, member countries jointly signed a framework agreement to establish an FTA by 2013 to create a conducive environment for trade between member countries without any barriers. Initially, Bangladesh did not sign the agreement due to prevailing domestic issues, but later the country joined the framework agreement. The objective of the agreement is to strengthen and enhance economic, trade, and investment cooperation among the members, progressively liberalize and promote trade in goods and services, and explore new areas. The Trade Negotiating Committee (TNC) was set up in 2004 to continue the negotiations on the implementation of the FTA. Trade negotiations mainly cover all trade in goods and outline the reduction and elimination of tariffs with more flexibility granted to the least developed countries (LDCs). The Committee is required to start deliberations on general rules focusing on the preparation of positive and negative lists.

India’s keen desire to promote regional cooperation in the South Asia had been fulfilled after obtaining the membership in BIMSTEC. India’s role is pivotal in the evolution and growth of BIMSTEC regional group. India and Thailand play a proactive role in forging a meaningful cooperation in the region. The Bay of Bengal space has emerged as an integral and inseparable part of India’s evolving Look East policy. East of India bordering the Bay of Bengal has been a traditional gateway to the hinterland of the Southeast Asia and beyond. There is strong civilization, ethnic, cultures, linguistic, economic, and political link with Southeast Asia which has developed as an imperative of interdependence through ages. The security, strategic, and economic interest of Indian Ocean region, including the Andaman and Nicobar group of Island, are also very closely linked to the Southeast Asian region surrounding it. India is now growing, while a considerable commerce with East and Southeast Asia passes through sea lanes in this sub-region. About the two-thirds of India’s exclusive economic zone and economic space in this region is estimated to be excess of the combined size of BIMSTEC economies. The Bay of Bengal sub-region accounts about 10% of India’s external economic relation. India has to anchor the peace and prosperity of sub-region for common good and interdependent destiny. India as the largest country has the responsibility to initiate more effective and proactive measures to hasten cooperation, including by developing enduring and mutually beneficial trade, infrastructure, investment, and other linkage, which alone has created and sustained a vested interest in sub-regional cooperation. BIMSTEC, nevertheless, is a modest experiment in pragmatic politics and realistic economics in a fiercely competitive globalized and rapidly changing environment. It is an experiment aimed at the achievement of incrementality without redefinition or reordering existing arrangements. It is an experiment to forge an arrangement to optimize step by step, opportunities through cooperation in selected identified areas and make up for missed opportunities. It is an experiment in moving forward without waiting all political or economic challenges to be overcome. It is above all a modest experiment in promoting sub-regional cooperation, optimizing synergies, complementarities, and advantages of shared geography and history. India and Thailand are among the rapidly growing economies of Bay of Bengal region which could together pilot the sub-region towards greater prosperity through cooperation, interdependence, and sub-regional common approach on crucial issues. Ultimately, the Bay of Bengal community has to be seen as a sub-regional building block of a larger Asian economic community and the emerging macro-level integration process.

Being the leading country in the group, India draws attention in the BIMSTEC framework and its functioning in the backdrop of the fast-changing global economic environment. India is the fast-emerging global power and dynamic economic player in the region responsible for peace and stability. India with its recent economic clout, capacity building measure and IT prowess, together with the gradual shift in the foreign policy outlook to suit to be rapid change in global geo-political issues deserve a special status in the BIMSTEC region.

Key Terms in this Chapter

Autoregressive Moving Average Process Model: A model of a differenced time series (one that has been rendered stationary by the elimination of “drift”) whose output needs to be anti-differenced to forecast the original series. ARIMA models can represent a wide range of time-series data and are used generally in computing the probability of a future value lying between any two limits.

Moving Average Model: A common approach for modeling univariate time series which specifies that the output variable depends linearly on the current and various past values of a stochastic (imperfectly predictable) term.

Autoregressive Model: A type of random process which is often used to model and predict various types of natural phenomena. The autoregressive model is one of a group of linear prediction formulas that attempt to predict an output of a system based on the previous outputs.

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation: ( BIMSTEC ): An international organization of seven nations of South Asia and South East Asia, namely, Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal, and Bhutan.

Time Series: A series of data points indexed (or listed or graphed) in time order. Most commonly, a time series is a sequence taken at successive equally spaced points in time.

Multiple Correlation Coefficient: A measure of how well a given variable can be predicted using a linear function of a set of other variables. It is the correlation between the variable’s values and the best predictions that can be computed linearly from the predictive variables.

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