The political economy of trade relations between India-Pakistan


  • Kishore C. Dash Associate Professor, Department of Global Studies, Thunderbird School of Global Management, Glendale, AZ, USA.
  • Robert K. McCleery



Trade barrier, Trade potential, Trade policy outcomes, Government strength, Regional stability, Rivalry.


A growing number of scholarly studies in and outside South Asia suggest the linkage between trade, economic development and peace between India and Pakistan. Despite many tangible political and economic gains of expanded India-Pakistan trade, the level of trade between India and Pakistan has remained anemic over the past six decades. Why hasn’t trade grown between India and Pakistan? What are the prospects of trade expansion between these two countries? Drawing on the growing political economy literature, we have identified four facilitating conditions to explain the growth of trade flows between a given pair of countries: distance, trade complementarity, rivalry, and government strength. In this article, we examine the dynamics and implications of these four conditions for trade relations between India and Pakistan. Following this analysis, we identify several key issues - trade liberalization, market access, energy cooperation, and regional stability - that can provide impetus needed to drive these two countries toward greater trade expansion.


Anderton, C. H. and Carter, J. R., 2001. The impact of war on trade: an interrupted times-series study. Journal of Peace Research, 38(4): 445–457.

Barbieri, K. and Levy, J. S., 1999. Sleeping with the enemy: the impact of war on trade. Journal of Peace Research, 36(4): 463–479.

Baroncelli, Eugenia., 2007. The peace dividend SAFTA, and Pakistan-India trade. In Zareen Fatima Naqvi and Philip Schuler (Ed.), The Challenges and Potential of Pakistan-India Trade, Washington D.C.: World Bank.

Batra, Amrita., 2004. India’s global trade potential: the gravity model approach. Indian Council for Research on International Economic Relations, New Delhi, Working Paper No. 151.

Bchir, M. H., Jean, S. and Laborde, D., 2006. Binding overhang and tariff-cutting formulas. Review of World Economics 14(2): 207–32.

Bose, S. and Jalal, A., 1998. Modern South Asia: History, Culture, Political Economy. London: Routledge.

Burki, S. J., Hashwani, A., Khan, A. U. and Sulaiman, M., 2006. Facilitating Freer Trade Under SAFTA: Issues in Pakistan, India, and Afghanistan. USAID, May.

Buzan, B. and Rizvi, G., 1986. South Asian Insecurity and the Great Powers. Houndsmill and London: Macmillan Press Ltd.

Chaney, T., 2008. Distorted gravity: the intensive and extensive margins of international trade. American Economic Review 98(4):1707-21.

Chin, G. and Stubbs, R., 2011. China, regional institutional-building, and the China-ASEAN free trade area. Review of International Political Economy, 18(3): 277–298.

Chowdhry, A., 2012. Real talk: perceptions of India-Pakistan trade. The AFPAK Channel, Foreign Policy. Retrieved from

Crabtree, J., 2012. Godrej set to deepen Pakistan trade ties. Financial Time, August 21.

Dash, K.C., 1996. The political economy of regional cooperation in South Asia. Pacific Affairs, 69(2):185-2009.

Dash, K. C., 2008. Regionalism in South Asia: Negotiating Cooperation, Institutional Structures. New York: Routledge.

De, P., Raihan, S., & Ghani, E., 2013. What does MFN trade mean for India and Pakistan? can MFN be a panacea? The World Bank Policy Research Working Paper, 6483, Washington, D.C.

De, P., 2009. Trade transportation costs in South Asia: an empirical investigation. In Brooks, D. and Hummels, D. Infrastructure’s role in lowering Asia’s trade costs. Cheltenham, UK and Northampton, MA, USA: Edward Elgar.

Diehl, P. F. and Goertz, G., 2001. War and peace in international rivalry. Ann Arbor: University of Michigan Press.

Disdier, A.C. and Head, K., 2008. The puzzling persistence of the distance effect on bilateral trade. Review of Economics and Statistics, 90(1):37-48.

Doctor, M., 2013. Prospects for deepening Mercosur integration: economic asymmetry and institutional deficits. Review of International Political Economy, 20(3): 515–540.

Dorussen, H. and Ward, H., 2010. Trade networks and the Kantian peace. Journal of Peace Research, 47(1): 29–42.

Etzioni, A., 1992. The evils of self-determination. Foreign Policy, 89 (2): 21–35.

Fontanella-Khan, J. (2012, May 23). India and Pakistan sign gas deal. Financial Times.

Francois, J. and Manchin, M., 2013. Institutions, infrastructure, and trade. World Development, 46(3): 165–175.

Frankel, J. and Romer, D., 1999. Does trade cause growth?. American Economic Review, 89(3):379-99.

Goldberg, P. K. and Pavcnik, N., 2007. Distributional effects of globalization in developing countries. Journal of Economic Literature, 45(1): 39–82.

Gopalan, S., Malik, A. A., and Reinert, K., 2013. The imperfect substitutes model in South Asia: Pakistan-India trade liberalization in the negative list. London: International Growth Centre, London School of Economics.

Gowa, J., 1994. Allies, adversaries, and international trade. Princeton: Princeton University Press.

Grieco, J. M., 1997. Systemic sources of variation in regional institutionalization in Western Europe, East Asia, and the Americas. In Edward D. Mansfield and Helen Milner (Eds), The political economy of regionalism. New York: Columbia University Press.

Grossman, G.M., and Helpman, E., 1994. Protection for sale: An empirical investigation. American Economic Review, 84(4), 833-850.

Gul, N. and Hafiz M. Y., 2011. The trade potential of Pakistan: an application of the gravity model. The Lahore Journal of Economics, 16(1): 23–62.

Hale, T., 2010. The de facto preferential trade agreement in East Asia. Review of International Political Economy, 18(3): 299–327.

Hiscox, M.J. (2002). International trade and political conflict. Princeton, NJ: Princeton University Press.

Huelshoff, M. G. (1994). Domestic politics and dynamic issue linkage: a reformulation of integration theory. International Studies Quarterly, 38(2): 255–279.

Husain, I., 2011. Prospects and challenges for increasing India-Pakistan trade. Washington DC: The Atlantic Council.

Khan, M. S., 2010. Improving India-Pakistan relations through trade, East Asian Bureau of Economic Research (EABER), April.

Lamant, J. and Kazmin, A. (2009, July 13). Fear of influence. Financial Times.

Mamoon, D. and Murshed, S.M., 2010. The conflict mitigating effects of trade in the India-Pakistan case. Economic Governance, 11(1): 145–167.

Mansfield, E. D. and Bronson, R., 1997. The political economy of major-power trade flows. In Edward D. Mansfield and Helen Milner (Ed.), The political economy of regionalism. New York: Columbia University Press.

Mayda, A.M., and Rodrik, D., 2005. Why are some people (and countries) more protectionist than others? European Economic Review, 49(6): 1393-1430.

Mehta, P. S. and Suleri, A. (2011, October 18). A win-win trade for India and Pakistan. Financial Express.

Michaely, M., 1996. Trade preferential agreements in Latin America: an ex-ante assessment. Policy Research Working Paper, 1583, The World Bank.

Milner, H., 1997. Interests, institutions and information: domestic policy and international relations. Princeton, NJ: Princeton University Press.

Morrow, J. D., 1999. How could trade affect conflict? Journal of Peace Research, 36(4): 481–489.

O’Rourke, K.H., and Sinnott, R., 2002. The determinants of individual trade policy preferences: International survey evidence. In S.M. Collins and D. Rodrik (Ed.), Brookings Trade Forum. Washington, D.C.: Brookings Institution, pp. 157-206.

Pasha, H. A. and Imran, M., 2012. The prospects for Indo-Pakistan trade. The Lahore Journal of Economics, (17), 293–313.

Putnam, R.D., 1988. Diplomacy and domestic politics: the logic of two-level games. International Organization, 42(3):427-460.

Rahman, M., Shadat, W. B. and Das, N. C., 2006. Trade potential in SAFTA - an application of augmented gravity model. Trade Working Papers 22296, East Asian Bureau of Economic Research.

Ravenhill, J., 2008. The new trade bilateralism in East Asia. In K. E. Calder and F. Fukuyama (Ed.), East Asian multilateralism: prospects for regional stability. Baltimore: John Hopkins University Press.

Rogowski, R., 1989. Commerce and coalitions: how trade affects domestic political alignments. Princeton, NJ: Princeton University Press.

Schiff, M., 2001. Will the real natural trading partner please stand up?. Journal of Economic Integration, 16(2): 245–62.

Solingen, E., 1996. Democracy, economic reform and regional cooperation. Journal of Theoretical Politics, 8(1): 81–96.

State Bank of Pakistan. 2006. Implications of liberalizing trade and investment with India.

Syrquin, M and Chenery, H. B. 1989. Three decades of industrialization. World Bank Economic Review, (May): 145–81.

Taneja, N., Ray, S., Kaushal, N., Chowdhury, D.R., 2011. Enhancing intra-SAARC trade: pruning India’s sensitive list under SAFTA. Working Paper 255, Indian Council for Research on International Economic Relations, New Delhi.

Taneja, N., 2013. Enhancing India-Pakistan trade, New America Foundation: Retrieved from

Thaler, R. H., 1988. Anomalies: the ultimatum game. Journal of Economic Perspectives, 2(4): 195–206.

Wacziarg, R., 2001. Measuring the dynamic gains from trade. World Bank Economic Review, 15(3): 393–429.

Waltz, K. N., 1993. The emerging structure of international politics. International Security, 18(2): 44–79.

Wriggins, W. H., Gause, G., Lyons, T. P. and Colbert, E., 1992. Dynamics of regional politics: four systems on the Indian Ocean rim. New York: Columbia University Press.