between 73% and 93% higher in Darjeeling.<sup>10</sup> In the case of rice alone these figures yield an upper bound of the potential consumption gains from the elimination of trade barriers as high as 8% of total expenditures. In fact consumer prices computed from households’ expenditure data are suspiciously low in Panchagarh. For rice, wheat and onion we are able to complement these data with producer prices from a different module of the same survey. The differences are still quite large, varying between 19% for wheat and 69% for gur. The upper bound of the potential gain from trade integration for rice is also substantial at 3% of total expenditures. These results resonate with the high production-consumption complementarity between Panchagarh and the Indian districts described above, providing confirmation of the potential large gains for Bangladeshi producers and Indian consumers from trade integration.

**Table 11: Price differentials across bordering districts for selected products, Darjeeling vs. Nepalese districts** **<u>(2010)</u>**

||diff.<br>(NPR)|Darje<br>% diff.|eling vs. Ilam<br>Cons. %<br>in total|<br>Potential<br>savings (%<br>cons.)|diff.<br>(NPR)|Darjeeli<br>% diff.|ng vs. Jhapa<br>Cons. %<br>in total|<br>Potential<br>savings (%<br>cons.)|
|---|---|---|---|---|---|---|---|---|
|Fine rice/Kg|-14.9|-37%|4.7%|1.7%|-16.1|-39%|7.0%|2.7%|
|Coarse rice/Kg|-8.8|-26%|19.0%|4.9%|-6.6|-20%|15.9%|3.2%|
|Wheat Whole/KG|-14.0|-42%|0.8%|0.3%|-9.9|-34%|1.1%|0.4%|
|Milk/Litre|6.3|22%|2.5%|0.6%|2.3|8%|2.5%|0.2%|
|Pure Ghee/Litre|103.6|23%|0.1%|0.02%|-25.5|-5%|3.0%|0.2%|
|Onion/KG|-10.4|-23%|0.8%|0.2%|0.6|2%|0.8%|0.01%|
|Sugar/Kg|-18.7|-27%|1.3%|0.3%|-10.9|-17%|1.9%|0.3%|
|Gur/Kg|-57.4|-49%|0.03%|0.01%|-12.1|-17%|0.1%|0.02%|

_Source: Authors’ elaboration based on Government of India’s Labour Bureau, India NSS 2009-10; Nepal LSS 2010. Prices are converted using the average Indian Rupee-Nepalese Rupee exchange rate in 2010. The price differential is computed as the difference between Darjeeling consumer prices and Nepalese districts’ consumer prices as estimated from the NLSS. Rice is not differentiated by type in the data for Darjeeling. ‘Cons. % in total’ indicates the share of the product in total households’ expenditures in the more expensive district; ‘potential gains’ are the potential savings as a share of total households’ expenditures in the expensive district obtained by equalizing the price with that of the cheaper district._ For some products the gains from trade integration are also likely to be appropriated by Indian producers and Bangladeshi consumers. In particular chillies and tea leaf have lower prices in Darjeeling than in Bangladesh, a result consistent with the importance of these goods in the production in Darjeeling. The relatively low relevance of these products in Panchagarh households’ consumption basket makes the magnitude of the potential gains from integration low.

Taken together the analyses above suggest the presence of important opportunities to trade across borders which are currently underexploited. This finding is subject to a number of caveats mentioned above that may reduce the real extent of these potential opportunities. On the other hand data limitations may also have prevented to identify other gains. For example the analysis has focused on agricultural products, which are likely to compose a large share of the trading basket across districts in case of deeper trade integration. However, these gains may extend well beyond agriculture. Taking the case of tea, the next part of the study will illustrate some of the factors that may prevent these gains from materializing as well as on the nature of some of the gains.

> 10 Contrary to the India-Nepal case, the rice subsidy in India should artificially reduce the price gap in the case of the Bangladesh-India comparison.

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