greater degree of bilateral investments could enhance trade, facilitate production networks and strengthen bilateral relations. Exports in sectors such as agriculture produce, chemicals, textiles, auto components could be enhanced through bilateral investment. The GTAP simulations indicate the winning sectors in terms of rise in export from India to Pakistan such as chemical, rubber and plastic, food processing, mineral fuels (petroleum, coal products), metals, machinery and equipment, textiles, leather products, sugar, etc. In other words, SAFTA with enhanced trade facilitation will help firms in India and Pakistan with the opportunity to exploit economies of scale through access to an enlarged market. In view of bigger market size, MFN status to India would attract Indian FDI into Pakistan in these sectors, thereby facilitating intra-industry trade between the two counties. For example, the export of petroleum products from India to Pakistan is one aspect of trade relations which will benefit from the new arrangement.<sup>25</sup> Undoubtedly, there would be a huge expansion in the number of new opportunities for trade and commercial enterprise in the region. At present, Pakistan is the only country from which investment is barred after India dispensed with similar clauses for Sri Lanka in 2004 and for Bangladesh in 2007. Recently, Indian investors have shown willingness to invest US$ 20 to 50 billion in Pakistan’s mining, petroleum, energy, power and infrastructure projects.<sup>26</sup> Indian private sector has also shown eagerness to export electricity to Pakistan through Wagah-Attari border. After enhancement in trade ties, opportunities for big projects like gas pipeline project between Turkmenistan, Afghanistan, Pakistan and India will further increase.

# **5. CONCLUSION**

South Asia is the least integrated region in the world. This has slowed down the promotion of shared prosperity and the pace of poverty reduction (Ahmed and Ghani, 2008). Three of the poorest South Asian countries, Afghanistan, Bhutan and Nepal, are land-locked. Several lagging regions in the larger South Asian countries of Bangladesh, India and Pakistan are located in the border areas. Of 14 states in India that have borders with neighbors, 12 have per capita income levels that are at or below the national average (Arunachal Pradesh, Assam, Meghalaya, Mizoram, Nagaland, Tripura, Manipur, West Bengal, Bihar, Uttar Pradesh, Jammu and Kashmir, and Rajasthan). In Pakistan, per capita income is lower than average in the border provinces of NWFP, Balochistan, and rural Sindh. In Bangladesh, the border districts tend to have per capita incomes lower than the national average.

Typically, these sub-regions have poor connectivity within countries and with the markets in the neighboring countries. This, in part, explains why poverty mass in South Asia is concentrated in the lagging regions while economic mass is concentrated in the leading regions. Therefore, stronger cooperation between India and Pakistan would reduce the vulnerabilities of South Asia’s poor.

South Asia’s coming demographic transition and the fact that traditional advanced country partners have entered a prolonged slowdown provides a new momentum for regional integration. Demographic dividend and large domestic market could be the catalysts that attract global

> 25 Lakshmi Mittal, an Indian steel tycoon, has set-up a new oil refinery in the border city of Bhatinda in India’s Punjab state in association with India’s Hindustan Petroleum Corporation Limited. It will eventually have the capacity to supply large amounts of petroleum products to Pakistan.

> 26 According to, Pak-India Business Council (PIBC) Chairman Noor Muhammad Kasuri.

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