Is SAARC Moving onto Income Divergence Trajectory?

Abstract

Regional trade and investment agreements arc critical for economic integration of the regional economics and political harmony. Their contribution to integration and growlh of economies is indispensable as they have been instrumental in reducing trade barriers, improving competitiveness, advancing technological options and attracting foreign direct investment, all of these create opportunities in support of sharp and sustained growth. In this regard, this study attempts to find income-eon vcrgcncc'divcrgcnec among the SA ARC' countries in the presence of trade liberalization, technology accumulation, government effectiveness and foreign direct investment. Using [l-convergence, unconditional income- convergence and conditional income-convergence methods, the income-convergence or divergence is examined for the period 1999-20I7. Panel estimation techniques used here takes into account regional-heterogeneity. Findings show that there is a lack of interregional associations and SAARC’ as a regional-alliance docs not meet the expectations in tenus of reaping regional benefits. Thus, the SAARC countries fail to show any evidence of income- convcrgcncc. In fact, since the signing of SAPTA and SAFT A. the SAARC countries have been on the path of divergence rather than convergence leading us to conclude that SAARC is virtually dead at this time.