The Impact Of Regional Economic Integration On Trade: An Econometric Analysis For Srilanka
This paper examines the impact of Regional Trade Agreements (RTAs) on Sri Lanka’s trade focusing on exports. The study uses the theoretically justified augmented gravity model of trade to analyse the impact on Sri Lanka’s exports with its major trade partner countries using the panel data technique on a sample of 45 countries for a period from 1999 to 2016. The model consists of RTA as a dummy variable. GDP of the partner country, the distance between countries, trade openness, and the real effective exchange rate are included as other control variables. The estimated result indicates Sri Lanka’s export is highly influenced by the South Asia Free Trade Agreement (SAFTA) as a regional trade agreement in the SAARC region. Moreover, Sri Lanka’s export trade is positively determined by the size of the economies, trade openness, and the real effective exchange rate. The transport cost is a significant factor in influencing Sri Lanka’s trade negatively, and the country-specific fixed effect reveals time-invariant factors are also significant to determine Sri Lanka’s trade with its neighbouring countries. As a policy implication, it is essential to liberaliseregional tariffs to some extent to enhance trade under the regional economic liberalisation process.
Keywords - Regional Trade Agreements (RTAs), Bilateral Trade Agreements (BTAs), Gravity model of trade, Country-specific fixed effect.