Sectoral Trade Channels and Economic Growth in South Asia: A Conceptual Framework and Empirical Agenda

The impact of sectoral trade channels (agriculture, manufacturing, and services) on economic growth in four South Asian economies (Bangladesh, India, Pakistan, and Sri Lanka) over the period 1993‒2023 is examined in this study. Trade is disaggregated into sectoral components, unlike in conventional analyses where it is treated as a single aggregated measure, to capture heterogeneous effects on growth. Panel data estimation techniques, including Ordinary Least Squares (OLS), Fixed Effects (FE), and Random Effects (RE), are employed, and potential endogeneity is addressed through two-stage least squares (2SLS). Key macroeconomic determinants, such as exchange rates, gross capital formation, and labor force participation, are also incorporated. It is found that agricultural and manufacturing trade exert positive and statistically significant effects on economic growth, whereas services trade is negatively associated with growth, a result attributed to structural inefficiencies, weak export orientation, and limited value addition in much of the services sector. Diverse growth drivers are revealed at the country level: manufacturing-led growth in Bangladesh and India, agriculture-driven growth in Sri Lanka, and capital formation-led growth in Pakistan. Economic expansion is consistently supported by exchange rate stability and gross capital formation, while labor force participation is shown to have mixed effects across countries. The results highlight the importance of country-specific, sector-focused trade and industrial policies through which high-performing sectors can be reinforced and lagging ones modernized, thereby promoting sustainable, inclusive, and resilient growth. By disaggregating trade channels, addressing endogeneity, and integrating macroeconomic determinants, robust empirical evidence is provided for policymakers, development agencies, and trade strategists seeking to enhance sectoral productivity, competitiveness, and long-term economic development in South Asia.