Dynamics of Trade Specialization and Performance of SAFTA: A Case Study of Afghanistan

Abstract

The idea that regional integration is the podium of economic growth dates back a long time. Even now, a plethora of literature confirms a strong and positive link between regional integration and economic growth. However, most of these studies are focused on developed countries. Indeed, literature from developing countries is scant, and that from underdeveloped and landlocked countries like Afghanistan is almost non-existent. In the context of South Asian Free Trade Agreement, this article endeavours to innovatively scrutinize the trends in exports, imports and trade at different industry levels in the trade specialization of Afghanistan. At the harmonized standard 6-digit level of product classification, the study has employed the Lafay Index approach. The study finds that Afghanistan has a greater affinity for resource-intensive manufacturing products and non-fuel primary commodities. The study suggests that Afghanistan should confront issues such as its trade deficit, its dependency on agricultural products for export and the underutilization of its natural resources. The results show that Afghanistan still has a competitive disadvantage over South Asian Association for Regional Cooperation (SAARC) members at different industry levels. The study recommends dealing with problems including technology diffusion, product diversity and quality sophistication at various industrial levels, which restrict a higher degree of trade specialization. JEL Codes: F1, F10, F14