India–Pakistan Economic Co-operation: Implications for Regional Integration in South Asia

The trade relationship between India and Pakistan is considered to be one of the most important determinants of the South Asian regional integration initiative. There have been several initiatives taken by India and Pakistan for strengthening bilateral relations, of which Pakistan’s recent decision to offer India most favoured nation (MFN) status is of great importance to the two countries and the region. This paper presents a comprehensive assessment of India–Pakistan trade relations, analysing the modalities of co-operation, and providing simulation results of potential economic benefits to both countries and to the South Asian region. The results show that exchange of MFN status leads to welfare and trade gains, and, when combined with improved trade facilitation measures, such gains become even more substantial.