Confluence of Commerce and Conflict between India and Pakistan Since 1947

Abstract

Bilateral trade between India and Pakistan is as old as the two countries are, but the volume of trade between them is microscale relative to the size of their economies. This paper is an attempt to measure the importance, strength and nature of the bilateral trade relationship between India and Pakistan with conflict since its birth. The conflict between the two nations is best understood in a multivariate framework where variables such as economic performance, integration with the rest of the world, bilateral trade, military expenditure, democracy orientation and population are simultaneously considered. Several empirical studies have examined the likely gains that are made from removing the barriers to trade between India and Pakistan. Several indices can be used to measure trade relations between two nations. One such index is the trade intensity used in this study. Bilateral trade relationships between India and Pakistan, described in terms of intensity indices, help to identify how intensively the countries are trading with each other. Bilateral trade intensity indices have been calculated for the time period 1981 to 2022. The limitation of the study is that the trade intensity indices have limited application for measuring bilateral potential trade between nations. The policy implications of the analysis are that there is no alternative way for the two countries to increase their economic ties.

Keywords: Bilateral Trade, Economic Ties, Trade Intensity, Trade Potential, Democracy and Conflict, Conflict and Economic Development

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