Regional Integration in South Asia

Trends, Challenges and Prospects

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Regional Integration in South Asia: Trends, Challenges and Prospects presents an objective assessment of trade and economic co-operation among South Asian nations and highlights policy issues to foster regional integration. The analyses presented in this volume go beyond the usual discussions on trade-in-goods to provide insightful perspectives on potential new areas of co-operation, emerging challenges, and country-specific views on regional and bilateral trade co-operation issues.

Written by influential analysts and researchers, the volume’s 24 chapters include perspectives from Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka, and examinations of new areas of co-operation such as investment, regional supply chains, energy and cross-border transport networks.



Regional Investment Co-operation in South Asia

Although theoretically foreign direct investment (FDI) and trade are considered to be substitutes for each other, evidence suggests that FDI could exploit those markets better by using its intangible assets that cannot be substituted by trade (Bloström and Kokko 1997; Caves 1996). These intangible assets of foreign companies include technological and marketing expertise, which could be used for exploiting knowledge of local markets, consumer preferences and business practices, etc. Under an integrated regional market, FDI from member countries could target each other’s market with a view to operating with low-tariff barriers. Such kinds of operation would be effective when production networks within the region function in a vertically integrated manner. In those markets, extra-regional FDI would take advantage of tariff barriers and large regional markets, etc. Despite the advantages of an integrated market, all locations within the region may not attract intra- and extra-regional investments at the same level; countries which have strong locational advantage could attract most of the FDI (Bloström and Kokko 1997). In other words, investment between member countries in an integrated region may be differentiated by differences in size of economy, variation in economic policies, poor physical and non-physical infrastructure facilities, lack of cross-border facilities and political factors (Sobhan 2004). Overall, an integrated regional market could facilitate ‘investment creation’ at a large scale both by intra-regional and extra-regional FDI. Promotion of FDI in South Asia should take that perspective into account in its initiative for regional co-operation for investment.


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