## 1.   Characteristics of SAARC Member States

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---

### Introduction: context and objective
- SAARC established in 1985 by seven member states: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka (SAARC, 1985).
- Stated goal toward attaining an economic union and expressed desire for a common currency.
- Structured economic cooperation began in December 1995 with implementation of the SAARC Preferential Trading Agreement.
- Intra-SAARC trade through end-2000 remained 3.8 percent of the region’s total trade.
- Political tensions, especially India–Pakistan hostility since 1947, have hindered economic integration (examples: missed deadline for draft treaty framework of South Asian Free Trade Area; postponement of twelfth SAARC Summit).
- Paper objective: present preliminary information on patterns of economic shocks affecting member economies to assess desirability and design of greater monetary cooperation in South Asia.

### Stylized facts: size, development, and trade
- Large heterogeneity in land area, GDP, and population across members; similar levels of human and economic development.
- Example contrasts:
  - India is more than ten thousand times larger, three thousand times more populous, and has GDP over eight hundred times greater than Maldives (smallest member).
- Four members (Bangladesh, Bhutan, Maldives and Nepal) are Least Developed Countries; three are developing countries.
- Regional economic indicator trends for 1980–2000:
  - Average inflation: higher than the Euro Area but less than ASEAN.
  - Average government deficit in SAARC: higher than ASEAN and the Euro areas.
  - Growth rate: comparable to ASEAN.
- Trade openness and patterns:
  - Intra-SAARC trade less than 4 percent of regional income in 2000; mainly primary products.
  - Regional trade openness limited to 25 percent of regional income.
  - Regional trade pattern compares poorly with ASEAN and Euro areas; similar to Mercosur and NAFTA.
- India’s dominance in SAARC:
  - India has 72.58 percent of the land area, 78.98 percent of the GDP, and 75.49 percent of the population of SAARC as a whole.

### Exchange rate regimes and exchange rate movements
- Diversity in exchange rate regimes:
  - Managed float: India, Sri Lanka, Pakistan (Sri Lanka characterized as free float since January 2001).
  - Pegged: Bangladesh, Bhutan, Maldives, Nepal.
  - Bhutan and Nepal: pegged to the Indian rupee with one-to-one convertibility for Bhutanese ngultrum over the last twenty years; only three adjustments in the India–Nepal rupee exchange rate (last adjustment almost ten years ago).
  - Maldives: de facto pegged arrangement to the U.S. dollar during the last five years of the sample period.
- Exchange rate trends (1980–2000):
  - Nominal exchange rates vis-à-vis the U.S. dollar: generally depreciating trend for every currency except Maldives.
  - Nominal depreciation rates: Bhutanese, Indian, and Nepalese currencies display similar movements vis-à-vis the U.S. dollar.
  - High bilateral correlations:
    - Three pairs of bilateral exchange rates (Bhutan–India, India–Nepal, Bhutan–Nepal implied) have coefficients of correlation greater than 85 percent.
    - Such high correlation absent among remaining bilateral exchange rates.
  - NEER and REER: generally decreasing trend; Sri Lanka’s REER suggests no trend over sample period.
  - NEER and REER correlations are all positive.
- External shock commonality:
  - Crises in balance of payments and extreme exchange rate volatility during the 1990s indicate a common external shock.
  - Five of seven members accepted IMF Article VIII status around mid-1994:
    - Bangladesh: April 11, 1994
    - India: August 20, 1994
    - Nepal: May 30, 1994
    - Pakistan: July 1, 1994
    - Sri Lanka: March 15, 1994
  - Subsequently, these five observed closer exchange rate movements (positive correlations).
  - Bhutan and Maldives have yet to accept Article VIII status.

### Inflation and output growth patterns
- Summary statistics (1980–2000):
  - Inflation averages:
    - Generally between 8 and 9 percent for six countries.
    - Bangladesh: averaged 6.8 percent.
    - Maldives: averaged 6.7 percent.
  - Real output growth averages:
    - Generally between 4 and 6 percent.
    - Maldives: averaged 8.4 percent.
- Time-series behavior:
  - Plots of inflation and real growth rates suggest no clear trend over the period.
  - Correlations of inflation and growth rates across countries show both positive and negative values.
- Statistical significance:
  - With the available number of observations, the 5 percent significance level requires a 43 percent coefficient of correlation.
  - A statistically significant smaller regional grouping identified: similarity in movement among Bhutanese, Indian, and Nepalese exchange rates is significant at the 5 percent level.
- Inflation trend observation:
  - Band of inflation generally small for SAARC countries.
  - Decreasing trend in inflation in 1994–2000 vis-à-vis 1981–1993: from an average rate of 9.2 percent in the earlier period to 6.4 percent in the latter.

### Estimation approach and methodology
- Objective: use the pattern of shocks facing SAARC member countries to assess candidacy for a currency union (an OCA criterion).
- Rationale: countries facing similar shocks incur lower costs from losing monetary and exchange rate adjustment tools.
- Model used:
  - Simpler time series model of growth: growth of real output regressed upon its own lags.
  - Both one- and two-period lags were used (data did not produce a consensus optimal lag length).
  - Residuals from these regressions are taken to represent the underlying disturbances (shocks).
- Estimation limitations:
  - VAR technique not used because preliminary estimates suggested data limitations and perverse impulse response functions (price levels increased with a positive demand shock for Bhutan, Maldives, and Nepal).
  - Impulse response functions not included in the paper (available on request).

### Empirical results — correlations and disturbances
- Exchange rate correlations:
  - NEER: six of a possible fifteen significant correlations (Table 5).
  - REER: four of a possible ten significant correlations (Table 6; REER data not available for Bhutan).
- Inflation and output correlations:
  - Tables 7 and 8 show only a handful of significant correlations from the twenty-one possible correlations for inflation and growth.
  - Correlations show mixed signs with no consistent similarity in movement.
- Disturbance correlations (residuals from growth regressions):
  - Tables 9 and 10 present correlations for single and double lag residuals.
  - No clear-cut pattern of disturbances; large number of both positive and negative correlation coefficients.
  - Quite a few correlations significant at the 5 percent level, more with the single lag than the double lag, but no consistency in sign.
  - Interpretation: member states did not face symmetric patterns of shocks during the sample period.
- Volatility of real shocks:
  - Standard deviations of the residuals for both lags are similar to Bayoumi and Eichengreen (1994) results for Germany, Japan, and United States: they are in the 2 percent range.
  - Maldives: standard deviations similar to Africa results (Bayoumi and Ostry, 1997), which fall into the 3 percent-4 percent range for the second lag.
- Selected numerical entries from tables (as presented):
  - Single lag standard deviations (Std. Dev.): BAN: 0.006; BHU: 0.009; MAL: 0.016; IND: 0.014; NEP: 0.014; PAK: 0.018; SRI: 0.010.
  - Double lag standard deviations (Std. Dev.): BAN: 0.009; BHU: 0.029; IND: 0.018; MAL: 0.032; NEP: 0.020; PAK: 0.019; SRI: 0.013.
  - Selected correlation examples:
    - GRNEP–GRBHU (exchange rate growth): 0.878744.
    - GRIND–GRBHU (NEER): 0.861083.
    - Inflation correlations: PAKP–INDP: 0.43; SRIP–MALP: 0.46.
    - Output growth correlations: SRIY–BANY: 0.44; SRIY–PAKY: -0.45.
  - Regional trade indicators (Table 3):
    - Bangladesh: 7.8% intra-SAARC; 31.78% openness.
    - India: 2.5% intra-SAARC; 21.26% openness.
    - Nepal: 31.3% intra-SAARC; 44.46% openness.
    - Maldives: 80.28% openness (intra-SAARC not reported).
    - Sri Lanka: 6.4% intra-SAARC; 73.01% openness.
    - SAARC (aggregate): 3.8% intra-SAARC; 25.89% openness.
  - SAARC aggregate indicators (Table 1, as reported):
    - SAARC area (sq. mile): 1,684,014
    - SAARC GDP (USD mill.) 2000: 578,559
    - SAARC Population (mil.) 2001: 1,347.94...
  - Table 2 macroeconomic averages (1980–2000):
    - Average inflation: 8.3
    - Average government balance: -5.25*****
    - Government Debt/GDP: 66.0 5/
    - Output Growth: 5.7
    - ASEAN Average inflation (1988–97): 20.2; Average government balance: -0.8; Government Debt/GDP: 38.0
    - Euro Area Avg. inflation (1988–97): 3.4; Average government balance: -4.1; Government Debt/GDP: 69.0

### Discussion and observations — implications for monetary cooperation
- Main empirical conclusion: the region was not a suitable candidate for a currency union during the sample period.
  - Reasons:
    - Member states faced asymmetrical economic disturbances, implying higher costs of mutual adjustment.
    - Low economic integration: limited intra-SAARC trade and low intra-regional factor mobility.
    - Absence of strong regional political commitment to establishing a currency union.
- Paradoxical and country-specific observations:
  - Pakistan and India: positive correlations for disturbances (significant in first lag but not second) suggest candidacy for a currency union, yet minuscule bilateral trade, limited factor links, and ongoing tension argue against it.
  - Bhutan and Nepal: despite fixed exchange rates with the Indian rupee and significant bilateral links with India, disturbances with India are statistically insignificant or some negative, contrary to expectations.
  - Maldives: economic performance differs from other member states despite significant intra-SAARC trade of 38 percent in 2000; reflects island economy characteristics, geographic distance, and small size.
- Endogeneity of costs:
  - Greater economic integration would reduce the cost of joining a currency union.
  - SAARC GEP (1997/98) envisages SAEU as a long-term goal, to be achieved at the earliest by 2020; hence costs of monetary cooperation expected to fall over time with integration.
- Institutional and sequencing considerations:
  - SAARCFINANCE (organization of Governors of Central Banks and Secretaries of Finance) established and recognized; current activities limited to information sharing, staff visits, and organizing workshops/seminars.
  - SAARC GEP (1997/98) lacks a time-bound road map and clear preconditions for monetary cooperation.
  - Recommendation: sequence monetary cooperation to harmonize with level of regional economic integration; use road map for economic integration until detailed monetary framework developed.
- Political economy:
  - Political commitment to integration is crucial and likely the most important ingredient for sustainable monetary integration.
  - Priority should be given to greater interaction under the SAARC process to build mutual understanding and a regional identity.

### Summary, conclusions, and policy recommendations
- Summary empirical conclusion:
  - SAARC member states were not suitable candidates for a currency union during the period surveyed due to asymmetrical shocks, large adjustment costs, low trade and factor integration, and limited political commitment.
- Key policy implications and recommended sequencing:
  - Continue cautious, incremental steps toward monetary cooperation linked to progress in economic integration (SAEU objective).
  - Use SAARCFINANCE activities as a starting point for greater monetary cooperation and preliminary work on a comprehensive integrated road map.
  - Develop a comprehensive framework that identifies preconditions, sequencing, and operationalization for monetary cooperation.
  - Recognize that the nature of shocks will evolve with development (declining agricultural share, increasing terms-of-trade and financial shocks), which will affect optimal monetary strategies over time.
  - Emphasize building political commitment and regional identity as foundational for further economic and monetary integration.
- Open questions and areas beyond scope:
  - Detailed debate needed on the end product of monetary cooperation (common new currency vs. adoption of a member state currency vs. other arrangements).
  - Further comprehensive analysis across multiple OCA criteria beyond patterns of shocks is required.

*Source: _wp03240 (excerpted content provided).*

### 1.   Characteristics of SAARC Member States ........................................................................13

### 1.   Characteristics of SAARC Member States

### Introduction: context and objective
- SAARC established in 1985 by seven member states: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka (SAARC, 1985).
- Goal announced by SAARC toward attaining an economic union and expressed desire for a common currency.
- Structured economic cooperation began in December 1995 with implementation of the SAARC Preferential Trading Agreement.
- Intra-SAARC trade through end-2000 remained 3.8 percent of the region’s total trade, reflecting limited intraregional factor mobility.
- Political tensions, especially India–Pakistan hostility since 1947, have hindered economic integration and weakened political commitment (e.g., missed deadline for draft treaty framework of South Asian Free Trade Area; postponement of twelfth SAARC Summit).
- Paper objective: present preliminary information on patterns of economic shocks affecting member economies to assess desirability and design of greater monetary cooperation in South Asia.

### Stylized facts: size, development, and trade
- Large heterogeneity in land area, GDP, and population across members; similar levels of human and economic development.
- Example contrasts: India is more than ten thousand times larger, three thousand times more populous, and has GDP over eight hundred times greater than Maldives (smallest member).
- GDP per capita (PPP, in U.S. dollars) and HDI show similar values across members.
- Four members (Bangladesh, Bhutan, Maldives and Nepal) are Least Developed Countries; three are developing countries.
- Regional economic indicator trends for 1980–2000:
  - Average inflation: higher than the Euro Area but less than ASEAN.
  - Average government deficit in SAARC: higher than ASEAN and the Euro areas.
  - Growth rate: comparable to ASEAN.
- Trade openness and patterns:
  - Intra-SAARC trade less than 4 percent of regional income in 2000; mainly primary products.
  - Regional trade openness (trade with countries outside region) limited to 25 percent of regional income.
  - Trade pattern compares poorly with ASEAN and Euro areas; similar to Mercosur and NAFTA.
- India’s dominance in SAARC:
  - India has 72.58 percent of the land area, 78.98 percent of the GDP, and 75.49 percent of the population of SAARC as a whole.

### Exchange rate regimes and exchange rate movements
- Diversity in exchange rate regimes among members:
  - Managed float: India, Sri Lanka, Pakistan (Sri Lanka characterized as free float since January 2001).
  - Pegged: Bangladesh, Bhutan, Maldives, Nepal.
  - Bhutan and Nepal: pegged to the Indian rupee with one-to-one convertibility for Bhutanese ngultrum over the last twenty years and only three adjustments in the India–Nepal rupee exchange rate (last adjustment almost ten years ago).
  - Maldives: de facto pegged arrangement to the U.S. dollar during the last five years of the sample period.
- Exchange rate trends (1980–2000):
  - Nominal exchange rates vis-à-vis the U.S. dollar: generally depreciating trend for every currency except Maldives.
  - Nominal depreciation rates (Figure 2): Bhutanese, Indian, and Nepalese currencies display similar movements vis-à-vis the U.S. dollar.
  - Correlation evidence:
    - Three pairs of bilateral exchange rates (Bhutan–India, India–Nepal, Bhutan–Nepal implied) have coefficients of correlation greater than 85 percent.
    - Absence of such high correlation among remaining bilateral exchange rates (see Table 4).
  - NEER and REER (Figures 3 and 4): generally decreasing trend; Sri Lanka’s REER suggests no trend over sample period.
  - Correlations in NEER and REER are all positive, possibly reflecting similarity in trading patterns among South Asian members.
- External shock commonality:
  - Member states appear to face a common external shock, evidenced by crises in balance of payments and extreme exchange rate volatility during the 1990s.
  - Five of seven members accepted IMF Article VIII status around mid-1994 (Bangladesh: April 11, 1994; India: August 20, 1994; Nepal: May 30, 1994; Pakistan: July 1, 1994; Sri Lanka: March 15, 1994). Subsequently, these five observed closer exchange rate movements (positive correlations).
  - Bhutan and Maldives have yet to accept Article VIII status.

### Inflation and output growth patterns
- Summary statistics (Table 2) for 1980–2000:
  - Inflation averages:
    - Generally between 8 and 9 percent for six countries.
    - Bangladesh: averaged 6.8 percent.
    - Maldives: averaged 6.7 percent.
  - Real output growth averages:
    - Generally between 4 and 6 percent.
    - Maldives: averaged 8.4 percent.
- Time-series behavior:
  - Plots of inflation and real growth rates (Figures 5 and 6) suggest no clear trend over the period.
  - Correlations of inflation and growth rates across countries show both positive and negative values (Tables 7 and 8).
- Statistical significance considerations:
  - With the available number of observations, the 5 percent significance level requires a 43 percent coefficient of correlation.
  - Significant correlations are highlighted in Tables 4–8.
  - A statistically significant smaller regional grouping identified: the similarity in movement among Bhutanese, Indian, and Nepalese exchange rates is significant at the 5 percent level.
- Inflation trend observation:
  - Band of inflation generally small for SAARC countries.
  - Decreasing trend in inflation in 1994–2000 vis-à-vis 1981–1993: from an average rate of 9.2 percent in the earlier period to (text ends here).

### Implications for monetary cooperation and process
- A finding of similarity of economic disturbances among member countries supports the idea of a currency union and greater monetary cooperation, since there would be less need for monetary policy to undertake adjustment.
- Given limited current regional economic integration, the paper recommends harmonizing monetary cooperation with the level of regional economic integration, using an interim period to develop a comprehensive and integrated plan for moving toward higher levels of monetary cooperation.
- Monetary cooperation can:
  - Provide a stable financial environment to promote greater regional trade.
  - Help stabilize regional exchange rates and reduce uncertainty in their movements.
  - Be particularly beneficial for SA given the lack of mature futures markets in foreign exchange.

### Conclusion (from this section)
- SAARC displays both unifying and fragmenting features:
  - Unifying: similar levels of human and economic development; some correlated exchange rate and macroeconomic behavior (notably among Bhutan, India, and Nepal); shared external shocks.
  - Fragmenting: large heterogeneity in size and economic weight (India’s dominance), low intra-regional trade (3.8 percent of regional trade through end-2000), diverse exchange rate regimes, and political tensions (notably India–Pakistan hostility) that have slowed integration.
- Interim recommendation: align monetary cooperation steps with progress in economic integration and use the interim period to prepare a comprehensive plan for monetary cooperation and possible future currency integration.

*Source: _wp03240 - 1.   Characteristics of SAARC Member States*

### 6.4 percent in the latter. This is in line with the global trend of a slowing in inflation.

### _wp03240 - 6.4 percent in the latter. This is in line with the global trend of a slowing in inflation.

### Estimation approach and methodology
- Objective: use the pattern of shocks facing SAARC member countries to assess candidacy for a currency union (an OCA criterion).
- Rationale: countries facing similar shocks incur lower costs from losing monetary and exchange rate adjustment tools.
- Model used:
  - A simpler time series model of growth: growth of real output regressed upon its own lags.
  - Both one- and two-period lags were used (data did not produce a consensus optimal lag length).
  - Residuals from these regressions are taken to represent the underlying disturbances (shocks).
- Estimation limitations:
  - VAR technique not used because preliminary estimates suggested data limitations and perverse impulse response functions (price levels increased with a positive demand shock for Bhutan, Maldives, and Nepal).
  - Impulse response functions not included in the paper (available on request).

### Empirical results — correlations and disturbances
- Nominal and real exchange rate correlations:
  - NEER: Table 5 had six of a possible fifteen significant correlations.
  - REER: Table 6 had four of a possible ten significant correlations (REER data not available for Bhutan).
- Inflation and output growth correlations:
  - Tables 7 and 8 show only a handful of significant correlations from the twenty-one possible correlations for inflation and growth.
  - Correlations show mixed signs (some positive, some negative) with no consistent similarity in movement.
- Disturbance correlations (residuals from growth regressions):
  - Tables 9 and 10 present correlations for single and double lag residuals.
  - No clear-cut pattern of disturbances; large number of both positive and negative correlation coefficients.
  - Quite a few correlations significant at the 5 percent level, more with the single lag than the double lag, but no consistency in sign.
  - Interpretation: member states did not face symmetric patterns of shocks during the sample period (similar to findings for Africa; contrasts with East Asia and Western Europe where many positively significant aggregate supply shocks were found).
- Volatility of real shocks:
  - Standard deviations of the residuals (errors) for both lags are similar to Bayoumi and Eichengreen (1994) results for Germany, Japan, and United States: they are in the 2 percent range.
  - Maldives: standard deviations similar to Africa results (Bayoumi and Ostry, 1997), which fall into the 3 percent-4 percent range for the second lag.

### Discussion and observations — implications for monetary cooperation
- Main empirical conclusion: the region is not a suitable candidate for a currency union during the sample period.
  - Reasoning:
    - Member states face asymmetrical economic disturbances, implying higher costs of mutual adjustment.
    - Low economic integration: limited intra-SAARC trade and low intra-regional factor mobility.
    - Absence of strong regional political commitment to establishing a currency union.
- Paradoxical and country-specific observations:
  - Pakistan and India: positive correlations for disturbances (significant in first lag but not second) suggest candidacy for a currency union, yet minuscule bilateral trade, limited factor links, and ongoing tension argue against it.
  - Bhutan and Nepal: despite fixed exchange rates with the Indian rupee and significant bilateral trade and factor inter-linkages with India, disturbances with India are statistically insignificant (some negative), suggesting they would not be candidates—contrary to expectations from economic inter-linkages.
  - Maldives: economic performance during the period differs from other member states despite significant intra-SAARC trade of 38 percent in 2000; reflects Maldives’ island economy, geographic distance, and small size.
- Endogeneity of costs:
  - Greater economic integration would reduce the cost of joining a currency union (citing Frankel and Rose, 1998; Karras and Stockes, 2001).
  - SAARC GEP (1997/98) envisages SAEU as a long-term goal, to be achieved at the earliest by 2020; hence costs of monetary cooperation expected to fall over time with integration.
- Institutional and sequencing considerations:
  - SAARCFINANCE (organization of Governors of Central Banks and Secretaries of Finance) established and formally recognized at the last SAARC summit; current activities limited to information sharing, staff visits, and organizing workshops/seminars.
  - SAARC GEP (1997/98) lacks a time-bound road map and clear preconditions for monetary cooperation (contrast with more detailed stages for economic integration).
  - Recommendation: sequence monetary cooperation to harmonize with the level of regional economic integration; draw on road map for economic integration until a detailed monetary framework is developed.
- Political economy:
  - Political commitment to integration is crucial and may be the most important ingredient (harder to quantify).
  - Priority should be given to greater interaction under the SAARC process to enhance understanding and develop regional identity—political component is endogenous and critical for sustainable integration.

### Summary, conclusions, and policy recommendations
- Summary conclusion:
  - Empirical analysis indicates SAARC member states were not suitable candidates for a currency union during the period surveyed due to asymmetrical shocks, large adjustment costs, and low trade and factor integration.
  - Sequence of monetary cooperation in South Asia should be structured and harmonized with the level of regional economic integration.
- Key policy implications and recommended sequencing:
  - Continue cautious, incremental steps toward monetary cooperation linked to progress in economic integration (SAEU objective).
  - Use SAARCFINANCE activities as a starting point for greater monetary cooperation and preliminary work on a comprehensive integrated road map for monetary cooperation.
  - Develop a comprehensive framework that identifies preconditions, sequencing, and operationalization for monetary cooperation (factors highlighted by Masson and Patillo (2001) referenced).
  - Recognize that the nature of shocks will evolve with development (declining agricultural share, increasing terms-of-trade and financial shocks), which will affect optimal monetary strategies over time.
  - Emphasize building political commitment and regional identity as foundational for further economic and monetary integration.
- Open questions and areas beyond scope:
  - Detailed debate needed on the end product of monetary cooperation (common new currency vs. adoption of a member state currency vs. other arrangements).
  - Further comprehensive analysis across multiple OCA criteria beyond patterns of shocks is required.

### Selected quantitative highlights from tables (as presented)
- NEER significant correlations: six of a possible fifteen (Table 5).
- REER significant correlations: four of a possible ten (Table 6; REER data not available for Bhutan).
- Tables 7 and 8: only a handful of significant correlations from the twenty-one possible correlations for inflation and growth.
- Volatility (standard deviations of residuals):
  - Typical member states: in the 2 percent range.
  - Maldives (second lag): in the 3 percent-4 percent range.
- SAARC aggregate and country characteristics (Table 1, as reported):
  - SAARC area (sq. mile): 1,684,014
  - SAARC GDP (USD mill.) 2000: 578,559
  - SAARC Population (mil.) 2001: 1,347.94...
- Table 2 macroeconomic averages (1980–2000):
  - Average inflation: 8.3
  - Average government balance: -5.25*****
  - Government Debt/GDP: 66.0 5/
  - Output Growth: 5.7
  - ASEAN Average inflation (1988–97): 20.2; Average government balance: -0.8; Government Debt/GDP: 38.0
  - Euro Area Avg. inflation (1988–97): 3.4; Average government balance: -4.1; Government Debt/GDP: 69.0

*Source: _wp03240 (excerpted content provided).*

### 7. Average for 1997, from Bayoumi and Mauro (2001).

### _wp03240 - 7. Average for 1997, from Bayoumi and Mauro (2001).

### Regional trade patterns (Table 3)
- Intra–SAARC Trade and Trade Openness (percent):
  - Bangladesh: 7.8% intra-SAARC; 31.78% openness
  - Bhutan: ... intra-SAARC; ... openness
  - India: 2.5% intra-SAARC; 21.26% openness
  - Maldives: ... intra-SAARC; 80.28% openness
  - Nepal: 31.3% intra-SAARC; 44.46% openness
  - Pakistan: 2.5% intra-SAARC; 31.41% openness
  - Sri Lanka: 6.4% intra-SAARC; 73.01% openness
  - SAARC (aggregate): 3.8% intra-SAARC; 25.89% openness
- Comparative regional groupings (year in parentheses):
  - SAARC (2000): 3.8% intra; 25.89% openness
  - ASEAN (1998): 23.5% intra; 101.2% openness
  - Euro Area (1998): 24.8% intra; 50.8% openness
  - Mercosur (1998): 4.4% intra; 18.1% openness
  - NAFTA (1998): 10.7% intra; 23.9% openness
- Notes:
  - Source: Direction of Trade Statistics Yearbook 2001 for intra-SAARC; openness from IFS (total merchandise trade converted at average period exchange rate against dollar (rf) as a percent of GDP); regional grouping data from Bayoumi and Mauro (2001).
  - The high level of Nepalese trade with India is due to the free trade agreement, which accounted for 30.8 percent of intra-SAARC trade.
  - Data for Bhutan and Maldives were not found in Direction of Trade Statistics Yearbook 2001; given country sizes, omission is not expected to materially affect SAARC average.

### Exchange rate correlations (Table 4)
- Exchange rate growth correlations (1980–2000), IFS code ae (end-of-period exchange rate in units of national currency to the U.S. dollar):
  - Matrix entries (selected):
    - GRBAN with GRBAN: 1.000000
    - GRBHU with GRBHU: 1.000000
    - GRIND with GRIND: 1.000000
    - GRMAL with GRMAL: 1.000000
    - GRNEP with GRNEP: 1.000000
    - GRPAK with GRPAK: 1.000000
    - GRSRI with GRSRI: 1.000000
  - Cross-country examples:
    - GRBAN–GRNEP: 0.181695
    - GRNEP–GRBHU: 0.878744
    - GRIND–GRBHU: -0.020310 (note symmetric entries reflect reported layout)

### Nominal effective exchange rate correlations (Table 5)
- Correlation matrix (International Monetary Fund data):
  - GRBAN–GRBAN: 1.000000
  - GRBHU–GRBHU: 1.000000
  - GRIND–GRIND: 1.000000
  - GRNEP–GRNEP: 1.000000
  - GRPAK–GRPAK: 1.000000
  - GRSRI–GRSRI: 1.000000
  - Selected cross-correlations:
    - GRBAN–GRIND: 0.339918
    - GRBAN–GRNEP: 0.405345
    - GRPAK–GRBAN: 0.547450
    - GRSRI–GRBAN: 0.595279
    - GRIND–GRBHU: 0.861083
    - GRNEP–GRBHU: 0.571886
    - GRNEP–GRIND: 0.610145

### Real effective exchange rate correlations (Table 6)
- Correlation matrix for Bangladesh, India, Nepal, Pakistan, and Sri Lanka (International Monetary Fund data):
  - GRBAN–GRBAN: 1.000000
  - GRIND–GRIND: 1.000000
  - GRNEP–GRNEP: 1.000000
  - GRPAK–GRPAK: 1.000000
  - GRSRI–GRSRI: 1.000000
  - Selected cross-correlations:
    - GRBAN–GRIND: 0.302231
    - GRBAN–GRNEP: 0.273193
    - GRBAN–GRPAK: 0.430344
    - GRBAN–GRSRI: 0.480120
    - GRNEP–GRIND: 0.501639
    - GRPAK–GRIND: 0.413592
    - GRSRI–GRPAK: 0.444670

### Correlations of inflation and output (Tables 7 and 8)
- Inflation correlations (Table 7):
  - Diagonal entries: BANP, BHUP, INDP, MALP, NEPP, PAKP, SRIP each 1.00 on their diagonals.
  - Selected off-diagonal correlations:
    - BANP–BHUP: 0.06
    - BANP–INDP: 0.13
    - INDP–MALP: 0.41
    - NEPP–MALP: 0.34
    - PAKP–INDP: 0.43
    - SRIP–MALP: 0.46
- Output growth correlations (Table 8):
  - Diagonal entries: BANY, BHUY, INDY, MALPY, NEPY, PAKY, SRIY each 1.00 on their diagonals.
  - Selected off-diagonal correlations:
    - INDY–BANY: 0.07
    - INDY–BHUY: -0.08
    - MALPY–INDY: 0.21
    - NEPY–BHUY: -0.33
    - PAKY–BANY: -0.30
    - SRIY–BANY: 0.44
    - SRIY–PAKY: -0.45

### Correlations and standard deviations of disturbances (Tables 9 and 10)
- Single lag disturbances (Table 9):
  - Correlation matrix entries (selected):
    - BAN with BAN: 1.00
    - BHU with BHU: 1.00
    - MAL with MAL: 1.00
    - IND with IND: 1.00
    - NEP with NEP: 1.00
    - PAK with PAK: 1.00
    - SRI with SRI: 1.00
    - BAN–IND: -0.87
    - BAN–MAL: -0.43
    - SRI–BAN: 0.49
  - Standard deviations (Std. Dev.):
    - BAN: 0.006
    - BHU: 0.009
    - MAL: 0.016
    - IND: 0.014
    - NEP: 0.014
    - PAK: 0.018
    - SRI: 0.010
- Double lag disturbances (Table 10):
  - Correlation matrix entries (selected):
    - BAN with BAN: 1.00
    - BHU with BHU: 1.00
    - IND with IND: 1.00
    - MAL with MAL: 1.00
    - NEP with NEP: 1.00
    - PAK with PAK: 1.00
    - SRI with SRI: 1.00
    - PAK–BAN: -0.34
    - SRI–BAN: 0.57
    - PAK–SRI: -0.56
  - Standard deviations (Std. Dev.):
    - BAN: 0.009
    - BHU: 0.029
    - IND: 0.018
    - MAL: 0.032
    - NEP: 0.020
    - PAK: 0.019
    - SRI: 0.013

### Time series and figures (1980–2000)
- Figure 1: Nominal exchange rates of SAARC member states vis-à-vis the U.S. dollar (IFS code ae; period 1980–2000). Charts shown for BAN, BHU, IND, MAL, NEP, PAK, SRI.
- Figure 2: Growth rates of the nominal exchange rates (GRBAN, GRBHU, GRIND, GRMAL, GRNEP, GRPAK, GRSRI) for period 1980–2000 (IFS code ae).
- Figure 3: Nominal effective exchange rates of the SAARC member states (NBAN, NBHU, NIND, NMAL, NNEP, NPAK, NSRI) (International Monetary Fund data).
- Figure 4: Real effective exchange rates for Bangladesh, India, Nepal, Pakistan, and Sri Lanka (RBAN, RIND, RNEP, RPAK, RSRI) (International Monetary Fund data).
- Figure 5: Inflation rates of SAARC member states (BANP, BHUP, INDP, MALP, NEPP, PAKP, SRIP).
  - Inflation defined as log change of the GDP deflator (IFS code f99bi.p) with exceptions:
    - Bangladesh: spike in 1989/1990 inconsistent with Hossain (2002) and IMF; data taken from Bangladesh Bureau of Statistics (95 percent fit for 1986–2000 excluding 1989/90).
    - Maldives: no GDP deflator for 1982 and 1983; data projected from GDP Volume 1994 prices (IFS code 99b.p; 99% fit) and total fish catch (IFS code 66a1; 93% fit).
- Figure 6: Output growth rates of SAARC member states (BANY, BHUY, INDY, MALY, NEPY, PAKY, SRIY).
  - Output growth defined as log change in real GDP (IFS code f99b.p); data from IFS Yearbook 2002, except Sri Lanka 1996–2000 from IFS Yearbook 2001.

*Source: Extracted data and figures as presented in the supplied content unit.*

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