Trade in Services and Investment Flows in South Asia


  • National Council of Applied Economic Research, New Delhi, India
  • National Council of Applied Economic Research, New Delhi


Despite being a group of contiguous countries, South Asia is one of the least integrated regions in terms of intra-regional investment and trade relations. The share of services in GDP of South Asian countries has increased substantially with South Asia exhibiting a high revealed comparative advantage in commercial services and more particularly in “other services†including computer and information technology enabled services. Analysis of the foreign direct investment (FDI) inflows in South Asia reveals that the number of total sale deals including Greenfield investments and Mergers and Acquisitions have increased in recent years. Though India is ranked as the second most attractive destination for FDI, South Asian countries, including India, do not rank high in terms of the FDI performance and potential indices and are also ranked low in the global competitiveness index. The study points out the investment constraints in South Asia and cites poor infrastructure and labour market inefficiencies as the bottlenecks in attracting higher FDI inflows. Emphasising the importance of Doha Development Agenda on the one hand, the paper lays out the importance of larger and broader RTAs like Pan Asia Free Trade Agreement (PAFTA) instead of narrow RTAs like SAFTA. The success of SAFTA in enabling regional integration would depend on turning its current shallow constitution in favour of a deep agreement taking into account various behind the border issues.


Trade, Services, Investment , South Asia

Full Text:


A.T. Kearney (2007), New Concerns in an Uncertain World: the 2007 A.T. Kearney FDI Confidence Index, A. T. Kearney

Adlung, Rudolf and Martin Roy (2005), “Turning Hills into Mountains? Current Commitments under the GATS and Prospects for Changeâ€, Journal of World Trade, Vol. 39, No. 6, pp.1161-1194.

Aggarwal, Aradhna (2007), “The influence of labour markets on FDI: Some empirical explorations in export oriented and domestic market seeking FDI across Indian statesâ€, Paper presented in the Seminar “India and Globalisationâ€, A Seminar in Honour of Professor N.S. Siddharthan, held at RIS conference hall, India Habitat Centre, New Delhi on 1 February 2007.

Aitken, Brian, Ann Harrison and Rober E. Lipsey (1996), Wages and Foreign ownership: A comparative study of Mexico, Venezuela and the United States, Journal of International Economics, Vol. 40, pp.345-371.

Alfaro, Laura (2003), “Foreign Direct Investment and growth: Does the sector matter?â€, Working Paper, Harvard Business School, USA, April.

Asian Development Bank (2007), South Asia Economic Report: FDI in South Asia, Manila.

Bhattacharya, Debapriya (2007), “South Asia: Intra-Regional Opportunities and Challengesâ€, presented at Fostering Trade through Private-Public Dialogue: Expert Meeting on Regional Integration in Asia, 28-29 March, ICRIER, New Delhi.

Borenzstein, E., Jose De Gregorio and Jong-Wha Lee (1998), “How does Foreign Direct Investment affect economic growth?â€, Journal of International Economics, Vol. 45, pp.115-135.

CENTAD (2005), South Asian Yearbook of Trade and Development, Mainstreaming Development in Trade Negotiations: Run upto Hong Kong, CENTAD, New Delhi.

Chadha, Rajesh (1998), “India’s export performance: A comparison with East Asian Countries†in Manmohan et al (eds.), Indian Economy in Transition: Environmental and Development Issues, Har-Anand, New Delhi,

Chadha, Rajesh (2001), “GATS and Developing Countries: A Case Study of Indiaâ€, in Stern M.Robert (ed.), Services in the International Economy, University of Michigan Press.

Chadha, Rajesh (2005), “Commentary: FTA’s and the WTO Doha development Round- Asian Response to EEU and FTAAâ€, Perspectives on the WTO Doha development agenda Multilateral Trade Negotiations, Global Economy Journal, Vol.5, Issue 4.

Chadha, Rajesh (2007), “Changing export composition of Indiaâ€, Macro Track, Vol. 9, No. 2, February.

Chanda, Rupa (2005), “India’s Stake in the WTO services Negotiations†in Bibek Debroy and Mohammed Saqib (eds), WTO at Ten: Looking Back to Look Beyond, RGICS and Liberty Institute (New Delhi: Konark Publishers), Vol. 2, pp.21-74.

Chulai, Chen (1999), “The impact of FDI and Trade†in Yanrui Wu (ed.), Foreign Direct Investment and Economic Growth in China, New Horizons in International Business, Edward Elgar Publishing Inc., UK.

De Mello, Luiz R., Jr. (1999), “Foreign Director Investment-led growth: Evidence from time series and panel dataâ€, Oxford Economic Papers, Vol. 51, No.1, pp.133-151.

Deardroff (2000), “International provisions of trade services, trade and fragmentationâ€, Discussion paper No.463, School of Public Policy, University of Michigan, Michigan.

Deardorff, Alan and Robert M. Stern (1985), “Methods of measurement of Non-Tariff Barriersâ€, UNCTAD/ST/MD/28, United Nations, Geneva.

Dubey, Muchkund (2007), “SAARC and South Asian Integrationâ€, Economic and Political Weekly, Vol. 42, No. 14, pp.1238-1240.

Graham, Edward H. (1995), “Foreign Direct Investment in the world economyâ€, IMF Working Paper WP 95/59, International Monetary Fund, Washington, DC.

Haddad, Mona and Ann Harrison (1993), “Are there positive spillovers from Direct Foreign Investment?â€, Journal of Development Economics, Vol. 42, pp.51-74.

Hoekman B. and C.P.Braga (1997), “Protection and Trade in Services: A surveyâ€, Open Economics Review, Vol.8, No. 3, pp.285-308.

IMF (1993), Balance of Payments Manual, IMF, Washington, DC, USA.

Jalilian, Hossein and John Weiss (2001), “Foreign Direct Investment and Poverty in the ASEAN regionâ€, conference on Globalisation and Poverty, University of Bradford.

Jenkins, Carolyn and Lynne Thomas (2002), “Foreign Direct Investment in South Africa: Determinants, characteristics and implications for economic growth and poverty alleviationâ€, Globalisation and Poverty Project, Centre for the Study of African Economies, University of Oxford.

Karsenty Guy (2000), Just how big are the stakes? in Sauve Pierre and Stern Robert, eds., GATS 2000: New directions in services trade liberalisation, ,Washington DC: Brookings Institution Press and Harvard University.

Kelegama, Saman and Indra Nath Mukherji (2007), “India-Sri Lanka Bilateral Free Trade Agreement: Six Years Performance and Beyondâ€, RIS Discussion Paper 119, New Delhi: Research and Information System for Developing Countries (RIS).

Klein, Michael, Carl Aaron and Bita Hadjimichael (2001), “Foreign Direct Investment and poverty reductionâ€, Policy Research Working Paper 2613, World Bank, Washington, DC.

Manual of Statistics of International Trade in Service ( 2001 ) , http//

Mattoo Aaditya (2000), “Developing countries in new round of GATS negotiations: towards a proactive roleâ€, The World Economy, pp.471-90.

Nataraj, Geethanjali (2000), “Issues for negotiation under the Doha programme on RTA’sâ€, Economic and Political Weekly, Vol.42, Issue No. 21, May 26-Jun 01, 2007.

Nataraj, Geethanjali (2007), “Infrastructure Challenge in South Asia: The Role of Public-Private Partnershipâ€, ADBI Discussion Paper No. 80, Tokyo.

ODI (2002), “Foreign Direct Investment: Who gains?â€, ODI Briefing Paper, Overseas Development Institute (ODI), London, April.

Panagariya, Arvind (2006), “Trading Choices for South Asiaâ€, in South Asia: Growth and Regional Integration, The World Bank, Washington, DC.

Pant, Manoj (1995), Foreign Direct Investment in India: Issues involved, Lancer Books, New Delhi.

Pradha, Jaya Prakash and Abhinav Alakshendra (2006), “Overseas acquisition versus green field investment: Which internationalization strategy is better Indian pharmaceutical enterprises?â€, ISID Working Paper 2006/07, Institute for Studies in Industrial Development, August.

RIS (2005), “World Trade Organization, special session of the council for trade in servicesâ€, report by the chairman to the trade negotiations committee, (TN/S/20).

Sahoo, Pravakar (2006), “Foreign Direct Investment in South Asia: Policy, Trends, Impact and Determinantsâ€, ADBI Discussion Paper, No. 56, Tokyo.

Raihan, S.and M. A. Razzaque (2007), “Welfare Effects of South Asian Free Trade Area Regional Trading Arrangements in South Asia: Implications for the Bangladesh Economyâ€,

SIA Newsletter (2007), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India, June.

Siddharthan, N.S and Stanley Nollen (2004), “MNE affiliation, firm size and exports revisited: A study of information technology firms in Indiaâ€, Journal of Development Studies, Vol. 40, No.6, pp.146-168.

Tambunan, Tulus (2005), “The impact of Foreign Direct Investment on poverty reduction: A survey of literature and a temporary finding from Indonesia, paper presented at consultative meeting on“Foreign Direct Investment and Policy Changes: Areas for New Researchâ€, United Nations Conference Centre, Bangkok, Thailand, 12-13 May.

Taneja, N. (2004), “Informal Trade in SAARC Region: Implications for FTAsâ€, Economic and Political Weekly, Vol.39, No. 51, pp.5367-71.

Taneja, N., A Mukherjee, S. Jayanetti, and T Jayawardena (2004), “Indo-Sri Lanka Trade in Services: FTA II and Beyondâ€, SANEI completed study (

UNCTAD, World Bank (1994), “Liberalising international transactions in services: A Handbookâ€, UN, New York and Geneva.

Winters, L.A. (2003), in Matto and Carzaniga (eds) Moving People to Deliver Services, The World Bank and Oxford University Press, Washington, D.C.

Winters, L.A. (2005), “Developing Country Proposals for the Liberalisation of Movements of Natural Service Suppliersâ€, Working Paper, T8, Issued by the Development Research Centre on Migration, Globalisation and Poverty.

World Bank (2000), World Development Report, World Bank, Washington, DC.

World Bank (2002), World Development Indicators, Washington DC, USA.

World Bank (2002), World Development Report, Washington DC, USA

World Bank (2006), South Asia: Growth and Regional Integration, Report No. 37858 – SAS, Washington, D.C.

World Bank (2007), World Development Indicators, World Bank, Washington, DC.

World Bank (2008), Doing Business 2008: Comparing Regulation in 178 Countries, World Bank, Washington, DC.

World Trade and Development Report (2007), Building a Development-Friendly world trading system, Oxford University Press, New Delhi and Research and Information System for Developing Countries.

WTO (1995), The results of Uruguay round of multilateral trade negotiations: The legal text for details of GATS, pp.325-51, Geneva.

Zhai, Fan (2006), “Preferential Trade Agreements in Asia: Alternative Scenarios of “hub and Spokeâ€â€, ERD Working Paper Series No. 83, Asian Development Bank, Manila.


  • There are currently no refbacks.