Conflict and regional integration between Pakistan and India. An inquiry into the economic gains and the “peace dividend” from SAFTA

Since partition in 1947, when they both gained their independence from Great Britain, India and Pakistan have become sovereign states along opposite sides of a militarized border. In this book Eugenia Baroncelli traces the evolving connection between inter-state violence and trade in Pakistan-India relations. Based on a gravity model of international trade, the book discusses the impact of war on bilateral trade from 1948 to 2000. Ongoing militarized disputes have significantly reduced Pakistan-India trade, leading to a fourfold decrease in expected flows in war years. Trade diplomacy through regional preferences has however engendered some optimism on the future relations between the two countries, as indicated by the trade gains that can be expected from the implementation of SAFTA (South Asian Free Trade Area). Nonetheless, trade gains from preferences are more contained compared to trade gains from shifting to a peaceful environment. Moreover, trade gains appear endogenous to security relations, so that their realization is conditional upon reduced tension in high level diplomacy between the two countries. While the potential of trade dividend from peace is great, so are the challenges that still stand in the way of Pakistan and India’s peace building through commercial diplomacy.