SANEI: Completed Studies: Abstract

Macro-Economic Modelling of South Asian Economies with Intra-SAARC Trade Link

This paper explains the macro-economic structure of South Asian economies with a view to measuring the impact of various policy options. These policies include fiscal and monetary policies, as well as the economic integration of the region as a whole. A common macro-economic framework is used in order to study commonalties and differences in the structure of the respective countries. A number of policy simulations especially with respect to population control, monetary policies, exchange rate policies, increased foreign aid, investment and economic reform have been tested and various time series techniques are used.

The study has used macro-econometric modelling techniques with individual country models for the five SAARC countries viz. Bangladesh, India, Nepal, Pakistan and Sri Lanka. There are all together 250 variables related to trade, national income, monetary and fiscal sectors. This study has generated a voluminous pool of time series data on important macro variables for the five countries which can be used for future studies. For this study a 22 years (1975 to 1996) time series data of each country is used for modelling. A three-stage simultaneous equation of about 15 indigenous variables is used for each country model. The data analysis is done using Statistical Application System (SAS).

This paper has quantitatively assessed the implications of increased intra-SAARC trade, National Product, Finance, GDP, BOP, FOREX, Price Level, Employment, Revenue Mobilisation, Savings and Investment of the member countries. Besides, the present study is stipulated to be helpful in dealing with questions such as: What could be a feasible (or desirable) pace of transformation from South Asian Preferential Trading Arrangement (SAPTA) to South Asian Free Trade Agreement (SAFTA)? What modalities and instruments could be adopted to move through a fast-track strategy to achieve SAFTA in the time frame envisaged by South Asian Leaders?

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