BANGLADESH INSTITUTE OF INTERNATIONAL AND STRATEGIC STUDIES

EXAMINING TRADE POTENTIAL IN BIMSTEC: A TRADE FRONTIER APPROACH

Author: Mahfuz Kabir

DOI Link: DOI: https://www.doi.org/10.56888/BIISSj2015v36n3a1

ABSTRACT

The body of theoretical and empirical literature suggests that economic regionalism is beneficial for trade flows. The fundamental analytical questions are whether the groups demonstrate significant impetus to expand intra-bloc trade and whether trade liberalisation within the regional arrangement results in non-trivial mutual gains. To address these queries, this paper investigates the trading pattern and potential of Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). It adopts a stochastic trade frontier approach to an augmented panel gravity model. The results reveal that imports of the member countries follow the Linder hypothesis, while exports can be explained by Heckscher-Ohlin-Samuelson theorem. Controlling for behind and beyond the border constraints, the results of a stochastic frontier gravity model also support these findings. Such constraints are found to explain most of the total variation in imports and exports. The results also suggest that the highest trade potential, estimated by the frontier gravity model, turns out to be significant. Also, members of the group can substantially expand intra-BIMSTEC trade if the constraints are either removed or kept at the minimum.