Impacts of BIMSTEC Free Trade Area: A CGE Analysis

Abstract

This paper examines the impacts of BIMSTEC FTA on its member countries. GTAP model and database are used to evaluate the effects. Since most of the BIMSTEC member countries are in general labor surplus country with high unemployment of unskilled labor, to capture this fact in the analysis, the paper performed two simulations considering both neo-classical full employment situation and unemployment situation. The results suggest that a complete removal of import tariffs among the member countries generate significant welfare gains for its members. The results also imply that some of the BIMSTEC member countries experience some adverse impact in case of terms of trade, industry output,, balance of trade etc. However, the most encouraging fact is the opportunities of employment generation after full implementation of BIMSTEC FTA. Since poverty is a common phenomenon in majority of the BIMSTEC countries, employment in unskilled labor might reduce poverty within the bloc.

Keywords: BIMSTEC FTA, Trade liberalization, GTAP, CGE Model.