What Does MFN Trade Mean for India and Pakistan? Can MFN be a Panacea?

India and Pakistan, the two largest economies in South Asia, share a common border, culture and history. Despite the benefits of proximity, the two neighbors have barely traded with each other. In 2011, trade with Pakistan accounted for less than h...

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Bibliographic Details
Main Authors:	De, Prabir, Raihan, Selim, Ghani, Ejaz
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	ACIDS ADVANCED COUNTRY AGGREGATE CONSUMPTION AGRICULTURAL PRODUCTS AGRICULTURE AIR AIR ROUTES AIR TRANSPORT AIR TRAVEL AIRCRAFT APPAREL AVERAGE TARIFF AVERAGE TARIFFS BARRIER BARRIERS TO TRADE BASE YEAR BENEFITS OF TRADE BENEFITS OF TRADE FACILITATION BILATERAL FREE TRADE AGREEMENT BILATERAL TRADE BILATERAL TRADE AGREEMENTS BILATERAL TRADE RELATIONS BORDER CROSSINGS BORDER INFRASTRUCTURE BORDER TRADE BOTTLENECKS CHAMBERS OF COMMERCE COMMODITIES COMMODITY COMPARATIVE ADVANTAGE COMPARATIVE ADVANTAGES COMPETITIVENESS CONGESTION CONNECTIVITY CONSTANT ELASTICITY OF SUBSTITUTION CONSTANT RETURNS TO SCALE CONSUMERS CONSUMPTION SUBSIDIES COST ANALYSIS CROSS-BORDER ISSUE CROSS-BORDER TRANSACTIONS CUSTOMS CUSTOMS AUTHORITIES CUSTOMS OFFICIALS CUSTOMS PROCEDURES DEBT DEMOGRAPHIC DEVELOPING COUNTRIES DEVELOPMENT POLICY DIGITAL SIGNATURE DIVIDEND DIVIDENDS DOMESTIC ECONOMY DOMESTIC MARKET E-COMMERCE ECONOMIC COOPERATION ECONOMIC DEVELOPMENT ECONOMIC INTEGRATION ECONOMIC POLICY ECONOMIC RELATIONS ECONOMIC STRENGTH ECONOMIES OF SCALE ELASTICITIES ELASTICITY ELASTICITY OF SUBSTITUTION ELASTICITY VALUE EQUILIBRIUM EXPORT BASES EXPORT SECTORS EXPORT SHARE EXPORT SUBSIDIES EXPORTERS EXPORTS FACTORS OF PRODUCTION FINANCIAL CRISIS FINANCIAL INSTITUTIONS FORECASTS FOREIGN INVESTMENT FREE TRADE FREE TRADE AGREEMENT FUELS FUTURE RESEARCH GDP GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODEL GLOBAL COMPUTABLE GENERAL EQUILIBRIUM GLOBAL INVESTMENT GLOBAL TRADE GLOBAL TRADE ANALYSIS GLOBALIZATION GRAVITY ESTIMATES GRAVITY MODEL GRAVITY MODEL APPROACH GRAVITY MODELS HARMONIZATION HIGH TARIFFS HIGHWAY IMPORT BANS IMPORT COSTS IMPORT DUTIES IMPORT PRICE IMPORT PRICES IMPORT TARIFF IMPORT TAXES IMPORTS IMPORTS OF TEXTILES INCOME LEVELS INCOME TAX INDUSTRIAL PRODUCTIVITY INDUSTRY TRADE INEFFICIENCY INFORMATION FLOWS INFORMATION SYSTEM INFRASTRUCTURE DEVELOPMENT INFRASTRUCTURE PROJECTS INTELLECTUAL PROPERTY INTERMEDIATE INPUTS INTERNATIONAL ECONOMICS INTERNATIONAL TRADE INTRAREGIONAL TRADE MARKET ACCESS MARKET SIZE METAL PRODUCTS MODE OF TRANSPORT MOST FAVORED NATION MOTOR VEHICLES NATURAL RESOURCES NEW MARKETS NEW PRODUCTS NON-TARIFF BARRIERS ONLINE BANKING OUTPUT OUTPUTS PAYMENT SYSTEMS PER CAPITA INCOME PER CAPITA INCOMES PERFECT COMPETITION PETROLEUM PRODUCTS PORT OF ENTRY PORTFOLIO POSITIVE EFFECTS PREFERENTIAL RATE PREFERENTIAL TRADE PREFERENTIAL TRADE AGREEMENTS PREFERENTIAL TREATMENT PRICE BANDS PRIMARY FACTORS PROTECTIONIST QUANTITATIVE RESTRICTIONS RAIL RAIL CROSSING RAIL NETWORKS RAIL TRAVEL RAILWAY RAILWAYS REAL GDP REGIONAL INTEGRATION REGIONAL TRANSPORT REGIONALISM REGULATORY SYSTEMS ROAD ROAD NETWORK ROUTE SAVINGS SOURCING STATE BANK TARIFF BARRIERS TARIFF CHANGES TARIFF DISPERSION TARIFF RATES TAX TAX REVENUES TECHNICAL BARRIERS TIRES TRADE AGREEMENT TRADE BALANCE TRADE CLASSIFICATION TRADE COOPERATION TRADE COSTS TRADE CREATION TRADE DEFICIT TRADE DIVERSION TRADE DIVERSION EFFECT TRADE FACILITATION TRADE FINANCE TRADE FLOWS TRADE IN GOODS TRADE LIBERALIZATION TRADE LOGISTICS TRADE PARTNERSHIP TRADE POLICIES TRADE PROMOTION TRADE REGIME TRADE REGIMES TRADE RELATION TRADE RELATIONS TRADE ROUTES TRADE SURPLUS TRAFFIC TRAINS TRAMWAY TRANSACTION COST TRANSACTION COSTS TRANSACTIONS COSTS TRANSIT TRANSIT TRADE TRANSPARENCY TRANSPORT TRANSPORT EQUIPMENT TRANSPORT FACILITATION TRANSPORT NETWORK TRANSPORTATION TRANSPORTATION COST TRANSPORTATION COSTS TRUCKS TRUE UNILATERAL LIBERALIZATION UTILITY FUNCTION VALUE ADDED VEHICLES VERTICAL INTEGRATION VOLUME OF TRADE WELFARE GAINS WELFARE IMPACTS WELFARE LOSS WTO ZERO PROFITS
Online Access:	http://documents.worldbank.org/curated/en/2013/06/17857354/mfn-trade-mean-india-pakistan-can-mfn-panacea http://hdl.handle.net/10986/15844

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Summary:	India and Pakistan, the two largest economies in South Asia, share a common border, culture and history. Despite the benefits of proximity, the two neighbors have barely traded with each other. In 2011, trade with Pakistan accounted for less than half a percent of India's total trade, whereas Pakistan's trade with India was 5.4 percent of its total trade. However, the recent thaw in India-Pakistan trade relations could signal a change. Pakistan has agreed to grant most favored nation status to India. India has already granted most favored nation status to Pakistan. What will be the gains from trade for the two countries? Will they be inclusive? Is most favored nation status a panacea? Should the granting of most favored nation status be accompanied by improvements in trade facilitation, infrastructure, connectivity, and logistics to reap the true benefits of trade and to promote shared prosperity? This paper attempts to answer these questions. It examines alternative scenarios on the gains from trade and it finds that what makes most favored nation status work is the trade facilitation that surrounds it. The results of the general equilibrium simulation indicate Pakistan's most favored nation status to India would generate larger benefits if it were supported by improved connectivity and trade facilitation measures. In other words, gains from trade would be small in the absence of improved connectivity and trade facilitation. The idea of trade facilitation is simple: implement measures to reduce the cost of trading across borders by improving infrastructure, institutions, services, policies, procedures, and market-oriented regulatory systems. The returns can be huge, even with modest resources and limited capacity. The dividends of trade facilitation can be shared by all.

What Does MFN Trade Mean for India and Pakistan? Can MFN be a Panacea?

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