A Study Of Bilateral Trade In Saarc Countries Economics Essay

This research paper offers a selective study of the gravitation equation ( GE ) in international trade. This equation started in the Sixties as a strictly empirical proposition to explicate bilateral trade flows. The information is taken from the SAARC states to measure the factors impacting the trade volume between these states by utilizing additive arrested development.

Number of variables that impact on trade volume are studied in this paper, like: conveyance cost, rising prices, exchange rate, GDP, population and distance. Multiple additive arrested development is used to analyze the variables that impact on the trade volume. It is good established through empirical observation that bilateral trade volumes fall as distance additions.

As Greenwood ( 1975 ) noted: Empirically based surveies that have examined topographic point to put migration within this model have about universally adopted for appraisal intents a modified gravitation type theoretical account of gross migration.

Chapter 1

Introduction

Gravity equation started in the Sixties as a strictly empirical proposition to explicate bilateral trade flows, without small or no theoretical underpinnings.

Empirical applications of GE expanded to cover a assortment of issues, such as the impact of regional trade understandings, national boundary lines and currency brotherhoods on trade, every bit good as the usage of the equation to screen out the comparative virtue of alternate trade theories ( Fratianni.M 2007 ) .

The aim is to explicate trade flows in footings of the gravitation equation ( GE ) . The ground for concentrating on gravitation is two crease. The first is that GE, unlike other models, has had great empirical success in explicating bilateral trade flows. The 2nd is that GE can be used to screen out alternate hypotheses of international trade. In its simplest signifier, the gravitation equation ( GE ) explains flows of a good between braces of states in footings of the states ‘ incomes, distance and a host of idiosyncratic factors such as common boundary line, common linguistic communication, and common money that enhance or cut down bilateral trade flows.

It is true that the SAARC states are low and in-between income developing counltries whose economic systems portion many similarities related to their geographics every bit good as the common facets of their civilization, history anld economic and societal development. Given their high population degrees, by comparing with non merely the major industrial states but besides most states in Africa, Latin America and West Asia, the SAARC states have a comparative advantage in the production and international trade of many labor-intensive makers. Yet, trade dealingss of the SAARC states are besides shaped by political factors ; in many cases vsing quantitative limitations and barriers to imports, these states hinder trade to protect favoured domestic industries.

Thymine HE gravitation equation has been often and successfully used for about 30 old ages to further apprehension of the determiners of bi- sidelong trade flows across states and, subse- quently, to analyse commercial policy steps. Its basic preparation is a loglinear map upon a chiseled set of variables. The explanatory variables are the incomes and populations of both states and the distance between them.

The gravitation theoretical account of trade in International economic sciences predicts the bilateral trade flows based on some variables, the theoretical account was foremost used by Walter Isard in 1954. The gravitation theoretical account has been used extensively in empirical surveies of international economic sciences since the sixtiess. Harmonizing to this theoretical account, bilateral trade is determined by the wealth and size of states, the distance between them, and other factors that distort trade. The theoretical foundations of the gravitation theoretical account are based on the theory of trade under imperfect competition and have late been integrated with the factor-proportions and demand-based theories of international trade ( Tamirisa.N, 99 ) .

THE “ gravitation equation ” has been long recognized for its consistent empirical success in explicating many different types of flows, such as migration, commutation, touristry, and trade good transportation. Typically, the log-linear equation specifies that a flow from beginning I to destination J can be explained by economic forces at the flow ‘s beginning, economic forces at the flow ‘s finish, and economic forces either helping or defying the flow ‘s motion from beginning to finish ( Bergstrand. J, 1985 )

The contraction in universe trade during the first stage of the Great Depression stands out as the strongest inauspicious daze to international trade in modem history. From 1929 to 1932 universe import and export volume in the industrialised states decreased about 30 % . However, it is non good understood which factors were responsible for the prostration. The factors intensifying duty and non-tariff trade barriers are worsening demand, increasing bilateral trade understandings, and international exchange rate policies. The importance attributed to each of these factors has frequently been controversial. ( Madsen. J, 2004 )

Saint-Etienne ( 1984, p. 29 ) argues that “ by the mid-1930 ‘s, international trade had become, in big proportion, swap trade ” as a consequence of the duties and nontariff barriers.

The survey of Eichengreen and Irwin ( 1995 ) is likely the most extended analysis of trade flows in the interwar period. Using 561 cross-sectional bilateral trade flows over three periods ( 1928, 1935, and 1938 ) they estimate a gravitation theoretical account of trade forms. They relate the value of bilateral flows to national income, population, distance, adjacency, trade and currency block indexs, and exchange rate variableness, to analyze the effects on trade of trade and currency blocks, and exchange rate variableness. They observe a worsening fringy leaning to import and export during the Depression, which they attribute to quotas and other adhering trade limitations, but do non officially prove their importance.

Bilateral trade is trade entirely between two provinces, Trade barriers between parts may significantly cut down economic efficiency by curtailing trade. Extensive empirical surveies have been conducted on trade barriers across states, by and large happening them big ( Anderson, 2004 ) .

Some empirical surveies have found that big fluctuations in trade are explained by duties and conveyance costs ( e.g. , Harrigan 1993 ; Hummels 1999 )

Exports:

An export is when you trade something out of the state. In economic science, an export is any good or trade good, transported from one state to another state in a legitimate manner, typically for usage in trade. Export goods or services are provided to foreign consumers by domestic manufacturers. Export is an of import portion of international trade. Export of commercial measures of goods usually requires engagement of the imposts governments in both the state of export and the state of import. The coming of little trades over the cyberspace such as through Amazon and e-Bay has mostly bypassed the engagement of Customs in many states due to the low single values of these trades. However, these little exports are still capable to legal limitations applied by the state of export.

A map of international trade whereby goods produced in one state is shipped to another state for future sale or trade. The sale of such goods adds to the bring forthing state ‘s gross end product. If used for trade, exports areA exchanged for other merchandises or services. Exports are one of the oldest signifiers of economic transportation, and occur on a big graduated table between states that have fewer limitations on trade, such as duties or subsidies.A A

Most of the largest companies runing in advanced economic systems will deduce a significant part of their one-year grosss from exports to other states. The ability to export goods helps an economic system to turn by selling more overall goods and services. One of the nucleus maps of diplomatic negotiations and foreign policy within authoritiess is to further economic trade in ways that benefit both parties involved.

Imports:

With mention to international trade, these are goods brought into one state from another.

An import ‘ is any good ( e.g. a trade good ) or service brought in from one state to another state ‘in a legitimate manner, typically for usage in trade. It is a good that is brought in from another state for sale. Import goods or services are provided to domestic consumers by foreign manufacturers. An import in the receiving state is an export to the sending state.

Imports, along with exports, form the footing of international trade. Import of goods usually requires engagement of the Customs governments in both the state of import and the state of export and are frequently capable to import quotas, duties and trade understandings. When the “ imports ” are the set of goods and services imported, “ Imports ” besides means the economic value of all goods and services that are imported. The macroeconomic variable I normally stand for the value of these imports over a given period of clip, normally one twelvemonth.

Remittances

Remittances refer to capital transportations of fiscal assets made by migrators as they move from one state to another. Foreign remittances comprise an increasing of import mechanism for transportation of resources from industrialised states to developing economic systems like Pakistan. A remittal is a transportation of money by a foreign worker to his place state. Money sent place by migrators constitutes the 2nd largest fiscal influx to many developing states. Remittances contribute to economic growing and to the supports of destitute people worldwide. Furthermore, remittal transportations can besides advance entree to fiscal services for the transmitter and receiver, thereby increasing fiscal and societal inclusion.

Exchange Rate:

In finance, the exchange rate ( besides known as the foreign-exchange rate, forex rate or FX rate ) between two currencies specifies how much one currency is deserving in footings of the other. It is the value of a foreign state ‘s currency in footings of the place state ‘s currency. The foreign exchange market ( currency, forex, or FX ) trades currencies. It lets Bankss and other establishments easy buy and sell currencies. The intent of the foreign exchange market is to assist international trade and investing. A foreign exchange market helps concerns convert one currency to another. For illustration, it permits a U.S. concern to import European goods and wage Euros, even though the concern ‘s income is in U.S. dollars. In a typical foreign exchange dealing a party purchases a measure of one currency by paying a measure of another currency.

Gross domestic merchandise ( GDP )

The gross domestic merchandise ( GDP ) or gross domestic income ( GDI ) is a basic step of a state ‘s economic public presentation and is the market value of all concluding goods and services made within the boundary lines of a state in a twelvemonth. It is a cardinal measuring of production and is really frequently positively correlated with the criterion of life.

The pecuniary value of all the finished goods and services produced within a state ‘s boundary lines in a specific clip period, though GDP is normally calculated on an one-year footing. It includes all of private and publicA ingestion, authorities spendings, investings and exports less imports that occur within a defined district.

Inflation:

In economic sciences, rising prices is a rise in the general degree of monetary values of goods and services in an economic system over a period of clip. When the monetary value degree rises, each unit of currency bargains fewer goods and services ; accordingly, rising prices is besides eroding in the buying power of money – a loss of existent value in the internal medium of exchange and unit of history in the economic system. The overall general upward monetary value motion of goods and services in an economic system, normally as measured by the Consumer Price Index and the Producer Price Index. Over clip, as the cost of goods and services addition, the value of a dollar is traveling to fall because a individual wo n’t be able to buy every bit much with that dollar as he/she antecedently could.

Chapter 2

Literature reappraisal

Exchange Rate

( Guedae, Sheldon and McCorriston 2002 ) observed that exchange rate uncertainness has had a important negative consequence on agricultural trade, Furthermore ; the negative impact of uncertainness on agricultural trade has been more important compared to other sectors and the most common averment has been that the hazard associated with this exchange rate volatility has reduced the degree of export. Rose used bilateral trade for a panel of 186 states, over the period 1970-90, happening a little, but statistically important, negative consequence of exchange rate volatility on trade and suggested that the agricultural trade is particularly affected by medium- to long-term exchange rate uncertainness. The grounds reported here suggests that agricultural trade is more susceptible to interchange rate uncertainness than the aggregative trade informations would propose and that the negative effects on the growing of trade have a stronger consequence on trade in agricultural goods compared with other sectors.

As the exchange rate volatility additions, so does the value of the existent option to export to the universe market. Higher volatility increases the possible additions from trade, it has been argued that higher exchange rate volatility has led to a lessening in international trade. ( Broll and Eckwert, 99 )

Higher volatility increases the possible additions from international trade, which makes production more profitable. However, a more volatile exchange rate implies a higher hazard exposure for international houses. This consequence works in the opposite way and tends to diminish production and the volume of international trade.

Broll and Eckwert observed that larger exchange rate fluctuations make the existent option to merchandise internationally more profitable, which tends to excite production and exports. Which of these effects dominates depends on the house ‘s attitude towards hazard, as their analysis demonstrates ; an addition in exchange rate volatility increases the volume of production and international trade, given that the house is antipathetic to put on the line, an addition in foreign market uncertainness induced by an addition in exchange rate volatility reduces its expected public-service corporation of income. This consequence implies a lessening in both production and the volume of international trade.

Higher exchange-rate volatility leads to higher cost for risk-averse bargainers and to less foreign trade, if alterations in exchange rates become unpredictable, this creates uncertainness about the net incomes to be made and, therefore, reduces the benefits of international trade.

Our consequences refering the effects of exchange-rate volatility on export flows suggest that there is a negative and statistically important long-term relationship between export flows and exchange-rate volatility. In most of the states, exchange-rate volatility has a short-term consequence on export flows and there is substantial causal relationship in which alterations in exchange- rate volatility cause alterations in existent exports.

( Alan C. Stockman 1985 ) examined how steady-state rising prices affects the way and size of international trade. The effects of rising prices work through alterations in supplies of labour and capital. For certain rates of rising prices, little alterations can hold dramatic effects on the way of trade ; for other rates of rising prices, the volume of trade is affected. When money is held for minutess intents and factor supplies are endogenous, alterations in rising prices can do alterations in the form of trade. Depending upon income snaps of demand for the two traded goods, and upon the initial form of trade, the volume of trade may lift or fall and the form of trade may be reversed by a alteration in the rate of rising prices.

If income snaps of demand for goods one and two differ, or if the fringy public-service corporations of ingestion of goods one and two are affected unsymmetrically by a alteration in the ingestion of non-traded goods or leisure, so an addition in rising prices may cut down exports ( or increase imports ) of good two, even though the economic system increases its production of that good.

Inflation affects the form of international trade through its effects on factor supplies. The magnitude of the effects of rising prices on factor supplies depends on parametric quantities of both gustatory sensations and engineering: the same parametric quantities that determine the form of trade.

( Alan C. Stockman, 85 ) concluded altering forms of universe rising prices can do alterations in the form of international trade even in the absence of alterations in existent comparative advantage.

At high ( low ) rising prices rates, the economic system produces merely the non-traded good and labor-intensive ( capital-intensive ) traded good. Small alterations in rising prices can hold dramatic effects on the form of trade. Even when the form of trade is non reversed in these instances, the volume of trade is affected by rising prices.

GDP

Robert C. Feenstra, James R. Markusen, Andrew K. Rose ( May, 2001 )

The GDP of the exporting state is found to be a powerful explanatory variable in the comparative strength of bilateral trade dealingss. ( Feenstra, Markusen and Rose, 2001 )

With respect to entire trade flows, merely the GDP of the exporting state ( a supply factor ) and the population of the importing state ( a demand factor ) have a important relation with the dependant variable that is trade. ( Srivastava and Green, 1986 )

Srinivasan and Archana ‘s findings suggest that the greater distance reduces bilateral trade and a larger GDP and population of the trading states enhance trade. A positive snap coefficient for GDP and Population reveals that size of the economic system is an of import determining factor explicating the influx and escape of goods and services.

The traditional gravitation theoretical account says that bilateral trade is a map of two general factors, the size of each province ‘s economic system and a opposition term.

It is measured as a province ‘s Gross Domestic Product ( GDP ) , and is expected to be positive ; more money means more imports.

World trade has grown much faster than universe GDP in recent decennaries, a plausible account of this globalisation phenomenon that has been set Forth is the one-sided trade liberalisation and engagement in the many-sided trading system undertaken by a figure of states and another one is the diminution in trade costs, including conveyance and communicating costs. Harmonizing to Linderos trade theoretical account, bilateral trade will be greater when the per capita GDPs of the trading states are more similar.

Duty barriers in the importation states tend to hold a negative, albeit insignificant, consequence on exports. Per capita GDP and population, on the other manus, have important positive effects on bilateral exports. ( Tamirisa T Natalia 1999 )

Early surveies on the determiners of trade focused chiefly on the relation between distance and trade. In general, it has been good established that distance is a strong determiner of the strength of trade flows that occur between states ; states that are geographically proximate will be given to merchandise comparatively more than will nations that are farther apart.

( Srivastava and Green, 1986 ) concluded that the distance is the individual most of import determiner of trade strength among states of the variables that they employed in their research. They applied this determination to all the merchandise classs every bit good as to the entire trade class.

Srivastava and Green identified several forces that go beyond simple GDP or distance in finding the trade ties that exist between states, particularly in the country of manufactured goods. In most instances distance accounted for lone half ( or less ) of the explained fluctuation in the strength of trade flows between states ; the add-on of other factors such as cultural similarity is necessary for a more comprehensive apprehension of the strength of trade ties that exist between states.

Mark grey observed that a state which boundary lines on ( or is geographically proximate to ) states that have big GDPs is more likely to hold a high proportion of its trade with those states than will states with neighbours who are hapless. Trade is exchange, as the universe economic system grows in size ; the potency for good trade grows. Therefore, a general growing in GDP reinforces trade.

Prasad and Gable examined the economic significance of international trade for OECD industrial economic systems and suggested that the ratio of entire trade volumes to existent GDP is frequently used as an index of an economic system ‘s openness to international trade.

Geographic and cultural distance consequences in exporters holding less control over jobbers in foreign markets. This state of affairs becomes worse when there is greater dependance on the jobber due to adhering legal understandings and secondly the jobber carries other merchandise lines that are more profitable than those of the exporter. This state of affairs is even more critical in those states with big interborder distances, hapless infrastructural installations, and limited handiness of transit agencies. Notably, the higher hazards associated with selling goods abroad require extra insurance coverage, which can increase the cost of the merchandise and its monetary value to the terminal user. This is a important job for the little house, since it earnestly can damage its fight in international markets ( Leonidou.C 2004 )

Communication is in many instances deficient and infrequent, chiefly because of big geographic and psychological distances between Sellerss and purchasers in international markets, the big geographic distance dividing Sellerss and purchasers in foreign markets, haltering communicating between the two parties

The big geographic distance dividing exporters from their foreign clients causes holds and increases costs in the proviso of postsales service ( peculiarly for consumer durable goodss and industrial goods ( Michael R. , and Ronkainen, 2001 )

Production costs, duties, and distance-related barriers enter houses ‘ pricing and end product determinations. These determinations, when set against the background of CES penchants, give a precise bilateral trade gauging equation. Indeed, the theory even predicts the functional signifier for the dependance of bilateral trade on duties, distance, and production costs. ( Huiwen Lai and Susan, 2004 )

Some trade barriers ( such as duties ) generate gross ; others, such as distance, bring forth productive activities such as transit to get the better of them ; and yet others, such as bureaucratic holds and ordinances merely create trading costs. It is good known that international trade flows can be good described by a ‘gravity equation ‘ in which bilateral trade flows are a log-linear map of the incomes of and distance between merchandising spouses ( Copeland and Taylor 2001 )

Per Capita Income:

Thursby and marie ( 1987 ) observed that there is more trade between the states holding same per capita income.

Geographic distances from merchandising spouses cut down per capita income because they create barriers for international trade. ( Haung R Rocco, 2007 )

National uncertainty-aversion negatively affects per capita income by cut downing trade openness, peculiarly for geographically unfastened states. ( Frankel and Romer ‘s 1999 )

Trade forms depend on the similarity of per capita income, and that the degree of trade in manufactured goods between two states will be reciprocally related to the differences in their per capita income, as predicted by Linder. ( Kang. M, 2006 )

Remittances

There is a considerable argument sing the part of remittals to economic development in developing states. The positive position speculations that remittances aid to better receivers ‘ criterion of life, promote families ‘ investing in instruction and health care. Remittances are besides necessary for funding imports, which is good for the balance of payment. ( Thanh Le, 2008 )

Pakistan has experienced a slow down in the influx of remittals, which reduces the incomes of families and puts force per unit area on the exchange rate ensuing in decrease in the influx of imports despite a decrease in import responsibilities ( Siddiqui and KEMAL, 2006 ) .

Remittances can play an of import function in development finance and advancing economic growing. Over the past decennaries, workers ‘ remittals have grown to go one of the largest beginnings of fiscal flows to developing states, it is undeniable that remittals have poverty-alleviating and consumption-smoothing effects on receiver families. Remittances have contributed small to economic growing in remittance-receiving economic systems and may hold even retarded growing in some. ( Barajas Gapen and Montiel1 2009 )

Remittances help better receivers ‘ criterion of life, promote families ‘ investing in instruction and health care. Remittances are besides necessary for funding imports, which is good for the balance of payment. However, oppositions of remittals persist that remittals fuel rising prices and cut down inducements to work, which are evidently harmful for growing and the consequences suggest a strongly important and economically relevant consequence of alterations in trade, remittals, and degree of institutional quality on growing ( Thanh Le, 2008 ) .

Duty

Duty barriers in the importation states tend to hold a negative, albeit insignificant, consequence on exports, Duty barriers in the importation states tend to hold a negative, albeit insignificant, consequence on exports, Empirical survey by Tamirisa ( 1999 ) found duty and capital controls lead to merchandise deformation. Duty has a important negative consequence on bilateral exports, in portion because of important trade cost, although the impact on imports is comparatively weak. In the presence of duty barrier. Duty is one of the important factor of bilateral trade mediate states, state ‘ size wealth, exchange and capital controls. While duty rate significantly cut down exports.

Presence of trade barriers, such as duties, NTBs, and exchange controls, decrease the volume of trade. Duty barriers besides have a negative affect mediate trading states.

Evidence on the extent to which duties and NTBs distort trade. While bilateral trade affects by duty charges which have a strong negative consequence on imports, and look to be more significant barriers to export ( Lee and Swagel 1997 )

Trade deformations caused by duties and exchange controls lower the long-term growing rates more significantly in a state that needs to import more under a free trade government. When the duty rates are high plenty, the productiveness of public input diminishes ; therefore, higher duties ever lead to take down growing rates. ( Lee, 1993 )

Lai and Chun Zhu ( 2004 ) concluded that Tariffs, and distance related barriers and production costs are of import factors impacting bilateral trade flows, duties cut down bilateral trade significantly. Reducing duty on imported input leads to a comparative enlargement of the tradable sector and hence, to a diminution in the comparative monetary value of the goods produced by that sector.

Transportation system Cost

When the footings of trade are held changeless, an addition in transit costs affects trade flows by increasing the domestic comparative monetary value of the importable good, and therefore such an addition is said to hold an inexplicit duty consequence ( Casas and Kwan Choi, 1985 ) .

Conveyance costs between states can present a formidable barrier to merchandise, similar in consequence to duties and institutional restraints, Sampson and Yeats found conveyance costs to be a more important trade barrier for United Kingdom exports than duties ; Finger and Yeats come to similar decisions for U.S. imports. This suggests that the effects of alterations in international conveyance costs on trade is itself worthy of survey, and that international trade research which does non see transit factors may be based on misconceptions and may bring forth erroneous decisions.

( Binkley and Harrer, 1981 )

Yeats ( 1977 ) haS shown for the United States that effectual protection due to international trans- port costs is at least every bit high as that due to duties. The trade opposition factors include conveyance costs, discriminatory ( or preferential ) trade agreements, and non-quantifiable factors such as linguistic communication barriers, whether states are neighbours or non, and political considerations.

The existent costs of trade ( the conveyance and other costs of making concern internationally ) are of import determiners of a state ‘s ability to take part to the full in the universe economic system. As liberalisation continues to cut down unreal trade barriers, the effectual rate of protection provided by conveyance costs is now, in many instances, well higher than that provided by duties.

Limao Venablesn ( 2001 ) found that this snap is big, with a 10-percentage-point addition in conveyance costs typically cut downing trade volumes by about 20 per centum. One of import ground for this is that at high adequate conveyance costs two states will non happen it profitable to merchandise.

There is a common belief that Africa trades “ excessively small ” both with itself and with the remainder of the universe. The hapless public presentation is typically attributed to protectionist trade policies ( Collier 1995 ; Collier and Gunning 1999 ) and high conveyance costs due to hapless substructure and inappropriate conveyance policies ( Amjadi and Yeats 1995 ) .

Sampson and Yeats ( 1978 ) observed that the trade barriers posed by conveyance costs have been found to transcend those due to duties for both Australia and the United Kingdom accents the function cargo costs have in restricting international trade flows. The findings besides indicate the possible importance of steps to salvage conveyance costs as a stimulation to merchandise.

Finger and Yeats ( Feb 1976 ) Transportation system costs tend to protect domestic manufacturers from foreign competition-as bashs such unreal barriers as import quotas, duties, etc. The overall consequences indicate that, whether measured in footings of nominal or effectual rates, transit costs pose a barrier at least equal to post Kennedy Round duties in the United States. It seems likely that recent crude oil monetary value additions will hold important inauspicious effects on trade barriers originating from transit costs.

Kweka ( 1999 ) recent surveies on trade policy for low-income states have established that high conveyance costs associated with hapless quality substructure in states such as Tanzania represent a barrier to merchandise and an extra beginning of protection to domestic manufacturers of import viing goods. One account is that conveyance costs represent a important load that constrains export fight. High transit costs on imported goods widen the cuneus between international and domestic monetary value of imports beyond the import duty, thereby supplying extra beginning of protection to the domestic import viing sectors.

In the instance of international trade, high conveyance cost may supply protection to import viing goods and bound export fight.

High domestic conveyance costs ( from farm to the port ) and international conveyance costs ( from the port to the universe market ) lessening export fight and manufacturer net incomes. Measures to cut down the conveyance cost load on exports can significantly better export public presentation. The high conveyance costs associated with frequently unequal substructure add to dealing costs, making a barrier to merchandise and extra protection to domestic manufacturers of import viing goods. Conveyance costs represent an inexplicit revenue enhancement on exporters. ( Kweka,1999 )

Naude and Matthee ( 2007 ) found empirical grounds that states with lower conveyance costs have had faster manufactured export and overall economic growing during the last three decennaries than states with higher conveyance costs.

Relatively high conveyance costs in Africa are one ground for the continent ‘s comparatively slow growing in exports compared to other developing parts.

There are at least five grounds why African states face high conveyance costs on their international trade: ( 1 ) distance, ( 2 ) being landlocked, ( 3 ) insufficient economic systems of graduated table in production, ( 4 ) deficiency of sufficient investing in conveyance substructure, and ( 5 ) trade and conveyance policies. Conveyance costs increase with distance, domestic conveyance costs will negatively impact fabrication exports.

Chapter 3

Research Method

Secondary informations of 3years comprised on twelvemonth 2006-2008, collected from the different beginnings i.e official web site of universe trade organisation ( WTO ) , International pecuniary fund ( IMF ) , CIA factbook files and official web sites of the SAARC states. The information is comprised on independent variables, Gross Domestic Product ( GDP ) , Distance, Population, Transport cost, exchange rate and rising prices, the dependent variables are the import volume and export volume.

After garnering the information from the selected sample, it will be analyzed utilizing SPSS package to analyse the impact of independent variables on the dependant variables

The intent is to place the variables that impact on bilateral trade volume i.e Import and export volume.

H1: There is a positive relationship between population and Export volume.

H2: There is a positive relationship between Distance and Export volume.

H3: There is a positive relationship between population and import volume.

H4: There is a positive relationship between Distance and import volume.

Restriction

This survey is conducted on the SAARC states and its consequences can non be generalized to the whole universe, consequences can be generalized to the adjacent states. The job was clip restraint and entree to the information for more figure of states was hard to garner hence this research was limited to merely SAARC states which includes Pakistan, India, Bhutan, Maldives, Nepal, Sri lanka, Bangladesh.

Decision

This research survey shows how the bilateral trade volume in the SAARC states varies due to different variables and how to get the better of those barriers to merchandise expeditiously and at the economic systems of graduated table.

It is good established through empirical observation that bilateral trade volumes fall as distance additions, raising the possibility that the different parametric quantity estimations are driven by differences in bilateral distance among merchandising spouses.