Managing Conflict through Trade: The Case of Pakistan and India
Of Peace and Trade Dividends: The Case of Pakistan and India
Siddhartha Mitra* and N.C. Pahariya**
The paper will try to speculate on the possible dynamics of India-Pakistan economic relations in the future. Indo-Pak relations with Sri Lanka will also be looked at, as they are a crucial medium for the evolution and strengthening of Indo-Pak economic ties. In Stage 1, we can envision Comprehensive Economic Partnership Agreements (CEPAs) being reached between a) India and Sri Lanka and b) Sri Lanka and Pakistan, as well as freer trade between India and Pakistan. These arrangements would result in an integrated sub-continental product market benefiting each country in terms of additional employment opportunities, enhanced efficiency in production facilitated by exploitation of scale economies and accompanying foreign direct investment (FDI), and access to a larger market. Being party to two CEPAs, Sri Lanka would gain relatively more than India and Pakistan in the first stage.
Stage 1 would lead to greater interaction between Indian and Pakistani entrepreneurs due to freer trade and direct Indian and Pakistani investment facilitated by CEPAs in Sri Lanka. Such interaction would create a demand for a CEPA between India and Pakistan so that each country can gain from the other’s comparative advantage in niche areas, as well as advantages in availability of inputs. The implementation of the CEPA between India and Pakistan would constitute Stage 2 in the evolution of economic relations between the two countries. This would generate investment and employment in both India and Pakistan.
The transition from stage 2 to 3 would see increased demand for labor mobility across the three countries, which would be stimulated by increased flows of FDI involving just the three mentioned countries as both sources and destinations. Such dynamics would pave the way for an agreement on free mobility of skilled labor among these countries resulting in increased employment opportunities, enhanced growth and people-to-people contacts finally leading to greater peace and prosperity in the subcontinent.
Our optimistic vision, however, might not come true. The objective of this paper would also be to identify the pitfalls, which might impede and shortchange this beneficial evolutionary process.
In this speculative exercise, we would look at online data on trade and foreign direct investment involving India, Pakistan and Sri Lanka from leading portals providing data relating to the Indian economy1, and trade statistics by the Ministry of Commerce, Government of Pakistan2. Apart from these, studies by Nisha Taneja3 and Rajesh Chadha4 will be examined.
 *Siddhartha Mitra is Director (Research), Consumer Unity Trust Society (CUTS) International. He has a Ph.D. in Agricultural and Resource Economics from the University of Maryland, USA, and a Masters in Economics from the Delhi School of Economics. His current areas of interest include peace and development economics with a focus on trade related issues. He has several publications in international journals and books.
**N.C. Pahariya is currently Professor of Economics, University of Rajasthan, Jaipur and Fellow, CUTS International. He teaches and researches in international trade theory and policy. He has recently written several articles on India-Pakistan peace and cooperation.
1 Export Import Databank, Ministry of Commerce and Industry, Government of India:
http://commerce.nic.in/eidb/default.asp; and www.indiastat.com
2 Ministry of Commerce, Government of Pakistan: http://www.commerce.gov.pk/Tradestat.asp
3 Taneja, Nisha (2000), ‘Trade Possibilities and Non-Tariff Barriers to Indo-Pak Trade’, ICRIER Working Paper 2000; and ‘Indo-Pak Trade: Firm Level Evidence’: http://www.pide.org.pk/pdf/Seminar/Seminar41.pdf
4 Chadha, Rajesh et al. (2003), ‘Indo-Pak Trade: More Butter, Fewer Guns,’ Margin, April-June, 35(3).
Bilateral Pathways to Regional Integration: The Case of Pakistan and India
Shaheen Rafi Khan*
Regional trade agreements (RTAs) mushroomed globally during the 1990s. Economic interdependence as a means to attain peace is becoming increasingly important, as the evolving global security paradigm grows weary of purely military solutions to inter and intrastate tensions. Despite the growing importance of the economic interdependence model, however, most of the existing literature is preoccupied with conducting a theoretical debate on the issue. There are relatively few attempts to test the theoretical premises through empirical studies.
This paper seeks to understand the trade conflict links in a bilateral context. It addresses the question whether economic interdependence between Pakistan and India is possible, and if such interdependence is likely to engender peaceful coexistence between the two. The Pakistan-India relationship is marred by perpetual tensions and intermittent conflict. A key conflict driver is the democracy deficit in Pakistan that ensures the military’s predominance in foreign policy formulation and sustains the traditional national security paradigm. Directed rather than elected governance has stifled discourse on prevailing structural anomalies. The democracy deficit has reinforced other bilateral contentions. Political tensions have held trade relations hostage, and despite complementarities, trade flows are miniscule. While a number of trade agreements have been concluded, recurring political tensions have undermined them. In fact, progress on regional economic integration has been stymied by the strained relations between the two countries -- the two country dominant paradigm. Alternatively, bilateral trade agreements have proven to be better 'negotiators' of trade and peace, because they create minimum ripples on the regional political landscape.
The research is designed to stimulate debate at a time when there is a thaw in relations between the two countries and continued cooperative initiatives between the two countries can synergize the process of south Asian regional integration.
* Dr. Shaheen Rafi Khan is a Visiting Research Fellow at the Sustainable Development Policy Institute, Islamabad, Pakistan. He earned his Ph.D. in economics from the Columbia University, USA.
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