Globalization and Markets

Regional Trade Integration

The stalemate in which multilateral trade liberalization is after the failure of the Geneva summit in 2008 has implied a renewed interest for regional trade agreement. In particular the US and the European Union are negotiating several trade agreements while the implementation of free trade areas between developing countries looks more difficult. However a few South-South regional agreements could be adopted soon or reinforced, in Asia (SAFTA) and in Africa (COMESA). It is particularly important to evaluate if these regional agreements are beneficial for developing countries, if they need accompanying policies to be put in place simultaneously and if they can play another role like contributing in a stabilization of agricultural prices for both domestic producers and consumers.

Regional Trade Cooperation and Food Prices: An Assessment for South Asia

Since trade is one way by which high food prices can be curbed, it is likely that the South Asia Free Trade Area (SAFTA) agreement could help mitigate the impact of global food price inflation within the region. Whereas the existing literature has focused mostly on trade diversion issues and economic viability of SAFTA, no analytical work has been done so far to assess the food price mitigating potential of regional trade cooperation in South Asia. This analysis fills the gap by explicitly modeling the SAFTA agreement in order to assess its welfare and trade consequences in the region and to evaluate if the agreement can help reduce world agricultural prices.

The findings confirm that SAFTA leads to moderate gains among its members and barely makes a dent on global trade. All South Asian countries gain marginal improvements in real income from SAFTA, except Bangladesh, which suffers a slight real income loss due to terms of trade deterioration—arising from its initially high protection levels—notwithstanding its allocation efficiency gains. Moreover, the SAFTA agreement alone could not counter the effects of high global food prices, due to the region’s small share in world trade.

Other related projects: Assessment of the Potential Impact of a COMESA Agreement, Prospective Impact of Greater Economic Integration of the Maghreb Countries, Effects of the Economic Partnership Agreements between the EU and the ACP countries.