Ex-Ante Evaluation of India’s Trade Alliance with Indo-Pacific Region: A General Equilibrium Analysis
| DOI | http://doi.org/10.1177/00157325221137945 |
| Published date | 01 May 2023 |
| Date | 01 May 2023 |
| Subject Matter | Articles |
Ex-Ante Evaluation of
India’s Trade Alliance
with Indo-Pacific
Region: A General
Equilibrium Analysis
Archana Srivastava1, Somesh Kumar Mathur2
and Prabir De3
Abstract
The study attempts to analyse the economy-wide impact of Indo-Pacific alliance
between India and rest of the 45 participating members using computable general
equilibrium (CGE) model. We introduce four simulation scenarios in the general
equilibrium model. The first scenario is the one in which India bilaterally liberal-
ises trade in terms of both tariffs liberalisation alone and then removal of tariffs
and reduction of non-tariff barriers together with all the countries of Indo-Pacific
region. The second scenario is when India bilaterally liberalises trade with all
the Asian countries of the Indo-Pacific region. The third scenario is when India
bilaterally liberalises trade with all the countries of the Indo-Pacific region but
excludes China from the region because of the current geopolitical reasons. The
fourth scenario is the one when free trade is considered among all the countries
in the Indo-Pacific region. The Indo-Pacific alliance seems to go beyond strate-
gic alliance with the 46 Indo-Pacific participating countries, wherein the mem-
bers gain due to potential movement of capital and welfare and economic gains
because of tariff and non-tariff liberalisation among the member countries. The
article suggests the road map for maximum welfare gains for India, keeping stra-
tegic and economic engagements with other member countries and sub-regions.
JEL Code: F15
Article
1Department of Economics & Finance, Birla Institute of Technology & Science (BITS), Pilani,
Hyderabad, Telangana, India.
2Department of Economics Sciences, Indian Institute of Technology Kanpur (IITK), Kanpur,
Uttar Pradesh, India.
3Research and Information System for Developing Countries (RIS), New Delhi, India.
Corresponding author:
Archana Srivastava, Department of Economics & Finance, Birla Institute of Technology & Science
(BITS), Pilani, Hyderabad Campus, Jawahar Nagar, Shamirpet, Hyderabad, Telangana 500078, India.
E-mail: archana@hyderabad.bits-pilani.ac.in
Foreign Trade Review
58(2) 220–245, 2023
© 2023 Indian Institute of
Foreign Trade
Reprints and permissions:
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DOI: 10.1177/00157325221137945
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Srivastava et al. 221
Keywords
GTAP 10, welfare effects, tariff and non-tariff barriers, VGDP, sectoral impacts,
equivalent variation, Asia-Pacific alliance
Introduction
The Indo-Pacic region has gained international signicance in recent years
because of its geopolitical location with comparatively diverse countries in
terms of comparative economic advantage. The emerging region is being con-
tested and does not have any specic geographical construct so far. Presently,
the region contains about 46 countries around the Indian Ocean and Pacic
Ocean.1 The geographically diverse countries ranging from ASEAN region to
South Asia, Latin America, North America, Northeast Asia Pacic, West Asia,
Africa and European Union seem to have heterogeneity in terms of the level of
economic development and also from the perspective of politics and security.
The region has a vast land area of 74.59 million sq. km with the population of
5.32 billion. The GDP of the region is US$64.04 trillion, with total trade in
goods of US$27.13 trillion and an intra-regional trade of US$7.37 trillion. The
region has huge potentials to enhance economic welfare of member countries
(De & Kumarasamy, 2020). Overall, the region contributes to more than half
of the world’s GDP and population. Because of the heterogeneous nature of the
region, there is the motivation for a bigger bloc in terms of economies of scale
and scope. The region contains nations such as nations from sub-Saharan Africa
which are rich in natural resources and if India puts capital in African nations,
returns to natural capital in India should increase. Further, if we look at ASEAN
nations, their interest lies in the economic alignment, but there are diverse cate-
gories of issues such as climate change and maritime securities, which motivate
us for a larger economic block.
In this article, we propose to evaluate the potential welfare impact of India’s
alliance with Indo-Pacific countries using the computable general equilibrium
(CGE) model. The present study analyses different trade liberalisation scenarios
such as bilateral trade liberalisation including tariffs and non-tariff measures
(NTMs) between India and rest of the Indo-Pacific countries. Next, we analyse
the welfare effects when trade is liberalised only between India and the Asian
nations of the Indo-Pacific region. Also, an extreme situation is considered when
trade is liberalised among all Indo-Pacific nations. We have also analysed India’s
potential welfare effects where China is excluded from the region. The details
about all four scenarios are provided in experimental design section.
The remaining article continues with some stylised facts about Indo-Pacific
alliance and proceeds with the discussion on the prevalence of tariff and non-tariff
barriers. Then the CGE methodology and the unique properties of Global Trade
Analysis Project (GTAP 10) are discussed. The experimental design is discussed
thereafter, followed by the results. Conclusion and policy implications are drawn
in the last section.
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