CHAPTER 1
The State of Play in South Asia
Introduction South Asia has been among the fastest-growing regions in the world over the past decade. This high-growth region offers dynamic new consumer markets as well as opportunities for production partnerships along regional value chains. However, intraregional trade is very low, suggesting that regional spillovers from individual country growth are muted. Many studies suggest that current intraregional trade is well below expected levels, resulting in significant forgone opportunities for consumers, exporters, and producers in the region.1 Given that trade is a conduit for growth, job creation, and poverty reduction, it is important to understand and address the factors contributing to the current suboptimal levels of engagement. History matters here, as does geography. This largely integrated region—directly integrated under colonialism or allied through other arrangements—saw its constituent nations pursue development mostly disengaged from each other after the British departure in 1947–48, except for landlocked countries and their neighbors.2 Importsubstituting industrialization strategies under highly restrictive trade programs and state-led development reinforced this trend. At the same time, advanced economies started liberalizing their markets. By the time liberalization strategies took hold in South Asia in the late 1980s and early 1990s (and in 1977 in Sri Lanka), intraregional trade as a share of total trade had fallen from about 12 percent in 1951 to 3 percent in 1990.3 All regional economies were low-income countries at the time, with limited production profiles and consumer markets. Thus, liberalization did not go far toward developing regional engagement in the next decade. Instead, trade and investment links were predominantly with the United States, Europe, Japan, and the East Asian Tigers.
23
