Lacuna in Trade Facilitation & Informalisation of Trade: Lesson from India-Bangladesh Trade

The large and vibrant informal trade between India, and Bangladesh continues to thrive despite unilateral/regional/multilateral trade liberalisation in these two countries. This calls for an in-depth analysis of India's informal trade with Bangladesh. Recent studies have also shown that even in today’s globalised world, informal trade barriers still do exist and inhibit trade flows, particularly so in the developing countries. This can arise due to a host of factors such as, complex customs procedures, capacity constraints and/or corruption at the border. These types of non-tariff barriers/structural impediments are less obvious but are also more difficult to directly measure. Particularly, with the decline in tariff rates of protection after the Uruguay round, the trade facilitation measures, the other name for reduction in transaction costs for trading goods has become an issues of significant importance in today’s world. In this context, this paper attempts to analyse the interplay between shortcoming of trade facilitation measures in India-Bangladesh border and growth of informal trade. Using insights from the New Institutional Economics informal and formal institutions engaged in cross-border trade are contrasted to examine whether informal trading arrangements provide better institutional solutions. The study is based on primary data collated through survey