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Unlocking the Potential of Regional Economic Cooperation and Integration in South Asia

Potential, Challenges and The Way Forward

image of Unlocking the Potential of Regional Economic Cooperation and Integration in South Asia

In the wake of the adoption of the 2030 Agenda for Sustainable Development that commits all countries to pursue inclusive and sustainable development, regional economic cooperation and integration has gained new momentum in South Asia, as the broader Asian region is emerging as the new engine of global growth. Often referred to as the least integrated of Asian-Pacific sub-regions, South Asia’s intra-regional trade accounts for about 6 per cent of its total trade, in comparison with 26 per cent among South-East Asian countries. Despite its strategic location at the confluence of Central and South-East Asia, South Asia has also failed to harness the full potential of connectivity and economic integration with neighboring sub-regions. This report examines how countries in South Asia could capitalize on opportunities to cooperate for closer regional economic integration, in particular in the four broad areas of trade and market integration, regional connectivity, financial cooperation, and collective actions to address shared risks and vulnerabilities. It reveals that trade barriers, infrastructural deficits and political divergences have cost the sub-region direly in terms of lost opportunities for exports, in the amount of USD54 billion in 2014 for example. The report underscores the prospects available for South Asian countries to play a stronger role in broader regionalism in Asia-Pacific as well as discusses the unique role of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in facilitating that process.

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Trade and market integration

Though South Asia has been making steady progress on most indicators of regional economic integration, the pace of change has been slow. Though growth rates have fluctuated since the onset of the financial crisis in 2008, South Asian economies have been resilient in the face of the global crisis and have managed to diversify their exports to some extent. While South Asia has improved its internal economic integration, the subregion is still a long way from catching up with the higher levels of integration achieved by neighbouring subregions of East and South-East Asia. Lower levels of integration signified by relatively low volumes of intraregional trade and greater challenges in terms of regulatory preparedness for liberalization of regional trade and investment mean that the subregion must prioritize and accelerate its reforms for economic integration to harness its potential in a meaningful way.

English

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