Output Relationships in South Asia: Are Bangladesh and India Different from Neighbours?

The formation of the South Asian Association of Regional Cooperation (SAARC) in the mid-1980s was aimed at achieving regional integration and economic growth. Hence, examining output interrelationships among South Asian economies becomes imperative, but work on this aspect has remained conspicuously absent. This study finds a long-run equilibrium relationship over the 1973–2010 period among five major South Asian nations: Bangladesh, India, Nepal, Pakistan and Sri Lanka. Bangladesh and India registered faster growth than other nations in South Asia since the liberalization in the early 1990s. Not only do these two countries appear to have achieved higher output cointegration than any of the other subgroups, but they also exert maximum influence on their neighbours. Liberalization and output cointegration along with high growth appear to be positively associated in South Asian nations. These findings have policy implications for other developing countries that aspire to grow fast, but lack adequate measures on regional integration.