Trade and investment potential among BCIM countries: prospects for a dynamic growth quadrangle

PurposeThe purpose of this paper is to explore the trade and investment potential under the ambit of sub‐regional cooperation comprising the four contiguous countries of Bangladesh, China, India and Myanmar (BCIM).Design/methodology/approachThe study addressed both intra‐regional and intra‐industrial trade, applying a dynamic gravity model of bilateral trade flows by product group of BEC's 1‐digit product classification, to set a panel data for the period of 1992‐2009.FindingsThe analysis reveals that higher trade transaction costs and tariff between each pair of countries reduce the trade flow. One of the major findings of the paper is that a large part of BCIM's trade has remained unrealized and the trade transaction cost is one of the major trading barriers prohibiting the growth of BCIM intra‐regional trade. The paper concludes that liberalization of non‐policy barriers will spur BCIM's trade, particularly in a time of ongoing global economic and financial crisis.Practical implicationsThe study reinforces that improvement in infrastructure that leads to less trade transportation costs should be a necessary step in order to realize BCIM's trade potential. The paper concludes that liberalization of non‐policy barriers will spur BCIM's trade and economic cooperation, particularly in time of ongoing global economic and financial crisis.Originality/valueThis paper is the first‐ever attempt to estimate the trade potential of BCIM countries using dynamic gravity model.