ABSTRACT
In this chapter, we formally introduce the role of bilateral trade in augmenting the process of economic integration. As in the previous chapter, we looked at the macroeconomic determinants of economic integration and found bilateral trade as one of the major drivers of economic integration in SAARC region. Specifically, in this chapter, we work on the bilateral export and import data created for the analysis, and introduce a host of regulatory and socio-economic factors to examine the impact of these factors on bilateral trade of SAARC countries. To contribute to the literature, the chapter explores the spatial econometric framework which has several advantages over conventional gravity model. We find that population, endowments concerning per-capita income difference, economic openness and real effective exchange rate are the major determinants which impact the bilateral trade. Surprisingly, we do not find the significant impact of the regulatory conditions and socio-economic backwardness on bilateral trade.
