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The study explores opportunities and challenges for intra- and inter-regional trade in the Central and South Asia areas by analyzing a wide range of channels impacting trade. Trade enhancing channels are divided into two broad categories. The first set refers to disaggregated or product-level characterizations of trade affecting competitiveness and complementarities between trading partners within and between the regions. The second refers to price, non-price and structural determinants that tend to affect all products traded between countries. The analysis also includes a gravity model to gauge the effect of economic growth, distance and price, non-price and structural determinants of regional trade.

The empirical results indicate that, under existing trade patterns, the potential value of trade in the two regions is nearly twice as large as the actual level. There are numerous policy initiatives that could be taken to help spur trade and investment in and between the two regions. Among the possibilities are regional value chains that could create large gains in terms of higher value additions to exports, technologies transfers and employment generation. The analysis of different types of value chains categorizes industries according to their value added contribution to trade, and it prioritizes industries according to interests ranging from the diversification of industries across resource-intensive, labor-intensive, and technology-intensive industries, as well as the potential participation of Afghanistan due to its comparative advantages in products exported by the industries or its geographic location for transit trade.