Saarc Region

In 2015-2016, CNA studied water resource competition between India, China, and Bangladesh in the Brahmaputra River basin. The Brahmaputra River, which originates in China and runs through India and Bangladesh, raises serious concerns for regional stability. China and India have fought a war over contested territory through which the Brahmaputra flows, while Bangladesh faces human security pressures in this basin that will be magnified by upstream river practices. Despite potential threats to regional stability from dam-building activities and water diversion plans on shared resources, no bilateral or multilateral water management accord exists in the Brahmaputra River basin.

This project, sponsored by the MacArthur Foundation, provides greater understanding of the equities and drivers fueling water insecurity in the Brahmaputra River basin. After conducting research in the three countries, CNA offers recommendations for key stakeholders to consider at the subnational, bilateral, and basin-wide levels. CNA’s findings lay the foundation for policymakers in China, India, and Bangladesh to discuss steps that manage water resource competition to help shift the discussion toward cooperative solutions that address underlying long-term water needs and development of the Brahmaputra basin.

Article History Keywords Markov switching model Stock market returns Exchange rate market Macroeconomic factors Financial crises JEL Classification: C22; G17; F31. This study empirically examines the link between stock market returns and exchange rate fluctuations using monthly data ranging from 1993 to 2016 for selected SAARC countries (Bangladesh, India, Pakistan, and Sri Lanka). In the presence of other macroeconomic factors, dynamic links in the financial markets are investigated using Hamilton's Markov switching approach. The multivariate analysis reveals that stock market returns develop in accordance with two different regimes: during a crisis and when there is no crisis. The study discovered evidence of switching suggesting that stock markets have persistent volatility in bullish trends and are influenced more by currency returns during both calm and turbulent periods. However, stock markets with persistent volatility in bearish trends are influenced more by other macroeconomic factors, in both periods. This implies that movements in the stock market are regime-dependent and transition probabilities between regimes can be affected by certain macroeconomic factors. Contribution/Originality: This study contributes to the existing literature by examining whether there is a switching behavior in South Asian stock markets and whether regime-switching behavior is influenced by a number of factors that directly or indirectly affect internal and external economic, financial, and political elements during times of crisis and stability.