Bilateral Trade Between India and Bangladesh: A Pre- and Post-SAFTA Period Analysis

Abstract

India and Bangladesh, the two neighbouring economies of South Asia, are at the centre of attraction in the foreign trade literature. The present article analyses the pattern of trade between India and Bangladesh before and after joining the South Asian Free Trade Area (SAFTA). The study covers twenty-five years, from 1996 to 2020 and used indices, namely, the Index of Revealed Comparative Advantage (RCA)Index, Trade Intensity Index (TII) and Trade Complementarity Index (TCI), to analyses the bilateral trade. Although Bangladesh has a relative comparative advantage in some of the products, India has a maximum comparative advantage in relatively more product groups. The index value of the TII is more than one for both countries during the study period, which means that the bilateral trade flows are highly intensive compared to their trading partner of the rest of the world. Furthermore, at the bilateral level, the index value of trade complementarity reflects a partial match between each country’s export supply and import demand because the value of indices stays between 0 and 100 during the entire study period. It also reflects that India’s export complementarity with Bangladesh is reciprocating, indicating growing trade demand for Indian product in Bangladesh’s market and India’s export supply becomes more compatible to meet imports demand of Bangladesh. India and Bangladesh have huge potential for bilateral trade, because they belong to Indian subcontinent, have geographical proximity, abundant natural resources and pursed similar policies towards achieving economic development. Neighbouring Countries, Bilateral Trade, Trade Intensity, Index of Revealed Comparative Advantage, Trade Complementarity, Trade Pattern, Exports, Imports JEL Classification: F10, F13, F14, F47