Is South Asian Free Trade Area Desirable? Evidence from Dynamic Gravity Models

This study investigates the desirability of South Asian Free Trade Area (SAFTA), considering its potential in generating trade creation and diversion effects by controlling persistence, which is often ignored previous studies. In this regard, dynamic gravity models on imports, exports, total are used over period from 2003 to 2013. Results for two-step system GMM estimator confirmed SAFTA with presence significant intra-bloc extra-bloc expansions. Further, depicted a anticipation effect as expansions were even one year prior implementation, they continued be until 2009. empirically confirms mitigating region’s political tension, especially when implementing strategy. Thus, it recommended bring full further reducing tariffs removing sensitive lists.