Regional trade barriers hinder South Asian economic integration

Various economic groupings have formed across the decades to capture practical advantages outlined in classical trade theories. Despite such frameworks, a major share of South Asian trade flows outward to the rest of the world rather than remaining within the neighbourhood. In 2025, regional commerce made up 61.2% of total trade for Nepal and 79.1% for Bhutan. However, most countries across the broader region still conduct the majority of their business with outside nations rather than with their direct neighbours. The World Bank calculates that existing trade obstacles create friction equivalent to an import tariff of up to 120%. This persists even though nations participate in the South Asian Free Trade Agreement. A substantial portion of all goods exchanged across member states lands on restrictive lists, undermining the intended benefits of regional free trade agreements. Effectively, 35% of all traded goods fall into such sensitive categories.