A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration, School of Management

Research studies project report (M.BA.) - Asian Institute of Technology, 1997

The world today is more economically dependent than at any time in history. Reduced transportation and communication cost together with globalization of business has drawn regional nations together, which has resulted in steady movement by nations towards economic integration. Seven South Asian countries, namely Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, have also initiated 'their effort of regional cooperation by establishing the South Asian Association for Regional Cooperation (SAARC). To promote economic cooperation the member countries have ratified the South Asian Preferential Trade Agreement (SAPTA) and are working towards establishment of South Asian Free Trade Area (SAFTA), by 2001 . Trade is an engine for economic growth. The success of any regional cooperation depends upon the volume of its internal and external trade. Despite close geographical location, common history and culture, members of SAARC have not been major trading partners. Most of the countries in South Asia face problems of poverty and under development. Moreover, they are facing problems of fragmentation of global trading system due to emergence of other regional groupings, rising protectionism from their traditional exports market, and reduced financial aid from industrialised countries. In this context, their movement towards economic integration is timely and appropriate. Effectiveness of their economic integration depends on how these countries handle impediments within the region and challenges from the rest of the world. Nepal has been a small player in the region with minimal contribution to the regional trade. It is believed that the economic integration will benefit Nepal in number of ways. But the very nature of the Nepalese economy imposes many obstacles. Major impediments for Nepal in terms of economic integration is its landlocked position, poor infrastructure and undeveloped industrial structure. Economic integration provides both opportunities as well as threat to Nepal. Therefore, Nepal needs to move cautiously towards higher degrees of economic integration prioritizing those areas in which it bears competitive advantage.