Do Trade Agreements Enhance Bilateral Trade? Focus on India and Sri Lanka

Hafiz Wasim Akram, Alam Ahmad (), Leo Dana, Asif Khan and Samreen Akhtar
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Hafiz Wasim Akram: Department of Marketing & Entrepreneurship, Dhofar University, Salalah 211, Oman
Alam Ahmad: College of Administrative and Financial Sciences, Saudi Electronic University, Riyadh 13316, Saudi Arabia
Asif Khan: Institute of Management Technology (IMT), Nagpur 441502, Maharashtra, India
Samreen Akhtar: College of Administrative and Financial Sciences, Saudi Electronic University, Riyadh 13316, Saudi Arabia

Sustainability, 2024, vol. 16, issue 2, 1-30

Abstract: This article examines bilateral trade relations between the two important countries of South Asia, India and Sri Lanka, in light of the South Asian Free Trade Area (SAFTA) and the India–Sri Lanka Free Trade Agreement (ISFTA). The analysis period spans the years 1995 to 2020. The primary analysis found that bilateral trade has been sluggish and that the SAFTA and ISFTA agreements have had no discernible effect on these two countries’ bilateral trade performance. The causes of lackluster trade performance were investigated using the “revealed comparative advantage” and the “trade complementarity” indices. Clear evidence was found demonstrating that the reason for the bilateral trade’s consistent lackluster performance is due to both countries’ lack of revealed comparative advantage in the majority of product groups, followed by export similarity in the product groups where they do have a comparative advantage. The findings also confirm the suspicion of many observers that they are competitors rather than natural trading partners. Although any substantial future increase in their bilateral trade is improbable and fanciful, the paper reflects on methods of strengthening bilateral trade.

Keywords: India–Sri Lanka trade; revealed comparative advantage; trade complementarity; SAFTA; ISFTA (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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