Nominal and per capita GDP was derived from the IMF`s global economic outlook and the World Bank`s global development indicators database. Distance data were obtained by Haveman (2006) or calculated directly with the great circle distance method. Although the data set had the potential for 18,252 observations, information on tariffs and import flows is subject to scarce information (Anderson and van Wincoop, 2004, provide an overview of trade and trade barrier restrictions). The number of full observations available is 3,739.22 The South Asian Free Trade Area (SAFTA) is an agreement reached on 6 January 2004 at the 12th ASAC Summit in Islamabad, Pakistan. It has created a free trade area of 1.6 billion people in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka to reduce tariffs on all goods traded by 2016. The SAFTA agreement entered into force on 1 January 2006 and is operational after the ratification of the agreement by the seven governments. SAFTA called on developing countries in South Asia (India, Pakistan and Sri Lanka) to reduce their tariffs to 20% during the first phase of the two-year period, until 2007. During the last five-year period, which ended in 2012, the 20% fee was reduced to zero in a series of annual reductions. The least developed countries of South Asia (Nepal, Bhutan, Bangladesh, Afghanistan and the Maldives) had an additional three years to reduce tariffs to zero. India and Pakistan ratified the treaty in 2009, while Afghanistan, SAARC`s eighth member state, ratified the SAFTA protocol on 4 May 2011.  The size of the variables added indicates a potential distortion of selection and, indeed, the results argue that pairs of countries offering full distribution trade are significantly below average (Table I.2). While these effects on trade volume need further study, it is important to note that the sensitivity of these quantities to tariff reductions in each block is not significantly affected. All coefficients are smaller in size, with the exception of the corresponding ROWs.
However, the overall ranking of ATRs is maintained. There is enormous potential to expand bilateral trade. The Pakistani and Indian economies are very complementary and increasingly important over time. The two countries also have a common border, history and cultural commonalities. Nevertheless, trade relations between South Asia`s two largest economies remain weak. Bandara and Yu (2003) use a similar argument to explain the decline in social benefits that an SA-ASEAN trade agreement would have for South Asian countries. The dynamics of customs revenues (RCs) are determined by the level of tariffs applied to imports and the sensitivity of imports to the evolution of these barriers. Equation 7 combines the definition of customs revenues with the pre-cutting of the reaction to the import of tariffs (equation 6). It follows that the sign of the change in turnover is determined by how to determine whether the s6j≥1; If this were the case, a reduction in tariffs would indeed cause a „Laffer shift effect“ that would increase overall customs revenue.
However, even for highly sensitive imports of NAFTA products (6nafta -23-4), the current level of average tariffs should be close to 57% for this to occur, higher than any tariff currently levied by a South Asian country. The RTA negotiations generally involve the communication of divergent interests between Member States and the simulations show that the decision on new trading partners is no exception (Table 2).