How South Asian Economies Managed Their Trade Risks Collaboratively ? A Study

South Asian economies, including India, witnessed a considerable GDP decline in the past few years. According to reliable published resources for the fiscal year Q4-2020, India’s GDP growth was as low as 3.1% on average over the previous 11 years. This empirical work was built upon the fundamental volatility model (using a 2-asset portfolio case). It comprised the exponential decay function on annual figures from 1976–2019 of overall trade, exports, and imports from five South Asian countries, namely Bangladesh, India, Nepal, Pakistan, and Sri Lanka (Bhutan was excluded due to paucity of data). For empirical justification of spillover effects and shock persistence, two exogenous macroeconomic factors, namely, the inflation percentage (CPI) and population rates, were also taken into account. The broad outcomes were mainly two. Firstly, there was a greater positive impact on time-varying trade-volatility shock persistence levels due to time-varying exogenous factors like inflation and population volatility. The second outcome is that portfolio or joint probabilities “reduce” such an impact, that is, time-varying portfolio volatility of the inflation rate and population rate did not reduce the shock persistence of time-varying trade volatility across the nations studied.