Pakistan-India Trade:

What Can India and Pakistan Do To Maximize the Benefits from Trade?
South Asia, as firms move in response to wage differences. Additionally,
the recent headwinds from the Euro crisis have caused a deceleration in
exports and a reversal of portfolio capital, and lowered gross domestic
product (GDP) growth in developing countries. Some of these downside
risks to growth can be minimized through increased South-South trade,
such as that in South Asia.
CurrenT sTaTe of BilaTeral Trade BeTWeen india
and PaKisTan
India and Pakistan have one of the world’s most restrictive trade regimes.
Barriers to trade are complex, and particularly “thick” at the land border.
These barriers can be divided into three different categories:
• Tariff barriers.
• Non-tariff barriers—a bigger constraint to trade than tariff barriers.
• Trade logistics and connectivity—the biggest constraints to trade
in South Asia.
All of these add to high transaction costs and longer times for trading.
High costs of trading have restricted the growth benefits of scale economies,
specialization, and agglomeration economies. These costs have diverted
employment and trade from formal to informal sectors. Estimates
on informal trade between India and Pakistan vary from half a billion to
about a billion dollars (all dollar figures in this essay refer to U.S. dollars).
A large proportion of informal trade occurs via Dubai, a process which is
inefficient and costly. Informal sectors account for the majority of nonagricultural
jobs in the region (Ghani and Kanbur 2012).
So what do India and Pakistan trade? Indian exports to Pakistan
are largely limited to about 15 commodities (De, Raihan, and Ghani
2012). These goods accounted for around 64 percent of the total Indian
exports to Pakistan in 2000, rising to around 80 percent by 2010. These
commodities include sugar, raw cotton, synthetic fabrics, tea, and petroleum
products and chemicals, reflecting India’s diversified industrial
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