Political Economy of the Preferential Trade Liberalizations and Regionalism in South Asia: Opportunities and Challenges/Economie Politique de la Liberalisations de Commerce Preferentielle Et Le Regionalisme en Asie Du Sud: Opportunites Et Defis (Report‪)‬

1. INTRODUCTION This paper examines the opportunities and challenges of the preferential trade liberalization in South Asia under political economy perspective. Successful regionalism and preferential trade liberalisation mostly depend on the existence of harmonious political relationships among influential countries of a regional organisation. This is partly because of the fact that political factors influence the formulation and implementation of various trade policies. Although, advocates of free trade argue that free trade maximises benefits of a country through efficient allocation of resources; governments are not always guided by efficient-based theorems. Preferential trade liberalisation policies of a country are largely determined by on the basis of the strength of pressure groups, rather than on the aggregate welfare consideration. The income distribution models of trade theories also account this view (Gawande 2005). The 'Stolper-Samuelson Theorem' suggests that one factor gains from protection at the expense of another. Similarly, the specific-factors model suggests that the specific factors of protected sector gain while specific factors in other sectors suffer (Ahmed and Sattar 2004, Carbaugh 2007). This discrimination creates conflict of interest among the factor owners, which results in lobby groups. Different lobby groups within an economy create strategic interactions between policy makers and lobby groups and also among governments of different countries (Gawande 2005).