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Regional integration can promote growth through several channels: agglomeration benefits, increased investments as a result of enlarged markets and economies of scale, flow of information and technology and knowledge spillovers, increased foreign direct investments, and deeper integration through regulatory cooperation and harmonization
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South Asia is the least integrated region in the world, where integration is measured by intraregional trade in goods, capital, and ideas
Trade
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The cost of trading across borders is one of the highest in the world for South Asia
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When external protection is high, trade diversion is likely to dominate trade creation, and so the risks that regional integration will become a drag on growth in South Asia is high – South Asia will need to further lower external trade barriers to generate classical gains from trade and to lessen the chances that trade diversion will occur
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It takes on average more than 33 days to export from South Asia compared to 12 days from OECD countries and more than 46 days to import into South Asia compared to 14 days for OECD.
Infrastructure/energy
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Regional cooperation will play a crucial role in meeting the infrastructure needs of the region. Trade and cooperation in energy and water will help the SAARC countries address some of the common problems they have in infrastructure. Particularly in energy, increased trade within SAARC and between SAARC and other regions can help meet the regions growing energy demands. Energy security is a major concern for the SAARC region, given its net energy imports position and fast growing demand coming from the growing economies and the need to expand access. Persistent and recurring electricity and gas shortages in the region highlight this concern.
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Energy endowments differ among the South Asian countries, but energy trade in the region is low. Only India, Bhutan, and Nepal currently trade electricity. The national energy systemsgas and electricity networksin the SAARC countries are largely isolated from each other. There are no gas pipelines crossing the national borders, whether within SAARC or between SAARC and its neighbors.
Inequality
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Several lagging regions in South Asia (northeast India, northwest Pakistan, northern Bangladesh, and parts of Nepal and Afghanistan) are border economies. They suffer from the disabilities typically associated with land-locked countries or geographical isolation. Typically, these sub-regions have poor connectivity with the markets within the country and with the neighboring countries. Regional cooperation on transport and trade facilitation can transform these land-locked regions into land-linked regions.
Transport/connectivity
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South Asia ranks the last among all world regions in terms of road density, rail lines, and mobile tele-density per capita. It is slightly ahead of Sub-Sahara Africa in terms of mainlines coverage, electricity, improved water sources, and sanitation. South Asia is the only region in the world that has no city that can provide 24/7 piped water. Poor transport and communications still hinder the integration of many rural areas into the wider economy
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Crossings between India and Bangladesh are so heavily congested that queues often exceed 1,000 trucks on the Indian side with the result that crossing time can take 99 hours instead of 21 hours without delay. Trade can be more than doubled if appropriate regional agreements on roads, rail, air, and shipping are put in place enabling seamless movement.
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In South Asia, only 7 percent of international telephone calls are regional, compared to 71 percent for East Asia.