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Static effects of a hypothetical customs union in the Indian sub-continent

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Title: Static effects of a hypothetical customs union in the Indian sub-continent
Authors: Jayaraman, Tiruvalangadu Krishnamurthy
Keywords: Customs unions -- Mathematical models
Issue Date: 1975
Abstract: This dissertation seeks to apply the theory of customs union to five countries in the Indian sub-continent, namely, Bangladesh, India, Nepal, Pakistan and Sri1anka and to measure ex-ante the static effects of such a customs union. The static effects include trade creation, trade diversion and export effects. Net welfare effects for each country in the union and for the union as a whole are calculated. The study is based on a partial equilibrium approach. Further, two assumptions have been made: (1) The supply elasticities of exports of each member country to other members and to the rest of the world, and those of the rest of the world to the members of the union are infinite; and (2) there is a one-stroke abolition of barriers to trade between the member countries once the customs union is formed. The methodology utilized is the ordinary least squares single equation regression analysis for estimating pre-union elasticities of import demand of each country with respect to imports from each of the other prospective member countries and the rest of the world. Imports are disaggregated into nine Sections as per Standard International Trade Classification. The pre-union tariff rates are the average implicit tariff rates for each of the nine SITC Sections which reflect the degree of protection due to both tariff and non-tariff barriers. The weights used for averaging purposes are the value added at international prices. Four different common external tariff structures are considered. Alternative I is the simple arithmetic mean of the pre-union tariff rates for each SITC Section; Alternative II is the highest pre-union tariff rate prevailing for each section in the region; Alternative III is the lowest pre-union rate, and Alternative IV is the simple average of these two rates for each section. The base year for calculating the static effects is 1969, which is considered to be free from any abnormalities in the region. However, as there was no trade in 1969 between India and the two wings of former Pakistan, quantum of trade for nine different SITC Sections have been extrapolated from the trend equations fitted for the period 1960-1965 during which there was a substantial volume of trade between these countries. Ex-ante measurements show that the welfare gains are positive for the union as well as for each of the member countries only when the common external tariff structure, Alternative III, is adopted. Under Alternative II, both the union and each member country experience maximum welfare loss, the worst hit member country being Srilanka, followed by Nepal, India, Pakistan and Bangladesh. Under Alternative I, the union again as a whole, suffers welfare loss; India, Nepal and Srilanka are the three member countries which do not benefit from the union whereas Pakistan and Bangladesh emerge as gainers. Under Alternative IV again there is a welfare loss for the union as well as for three member countries, namely, India, Nepal and Srilanka, but Pakistan and Bangladesh are benefitted by the union. The above results may be attributed to the following factors: (1) relatively low volume of pre-union intra-regional trade compared to the volume of trade with the rest of the world for each member country; (2) relatively high elasticities of demand for imports of the rest of the world; and (3) relatively high pre-union tariff rates in the region.
Description: Typescript.
Thesis (Ph. D.)--University of Hawaii at Manoa, 1975.
Bibliography: leaves 143-148.
xi, 148 leaves ill
Rights: All UHM dissertations and theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission from the copyright owner.
Appears in Collections:Ph.D. - Economics

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