Journal Press India^®

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This paper attempts to examine the possible impact of tariff liberalization due to the prospective India – GCC Free Trade Agreement (FTA) on revenue, welfare and potential trade flows between India and GCC by using an ex-ante equilibrium approach through the SMART model on disaggregated trade data. The ex-ante simulation results show that tariff liberalization will have a positive impact on both sides. The reduction in tariffs will lead to a significant increase in trade between India and GCC countries. The overall results suggest that for both sides, the fall in government revenue associated with tariff reduction would be greater than the net welfare gains, but these tariff revenue losses can be balanced by a significant expansion in exports. In a nutshell, both India and GCC have substantial trade potential and the proposed FTA will be mutually beneficial and welfare enhancing.

Keywords

Tariff liberalization; Free trade agreement; Trade diversion; Trade creation; Ex-ante partial equilibrium; Simulation approach

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