Having gained independence from British colonial rule in 1947, India and Pakistan have not been able to live in peace with each other. Military confrontation has ranged from low to high intensity conflict. As a consequence, the economic development of both countries has been undermined. Since their overt nuclearisation in 1998 both countries have been earnestly trying to address their differences in order to avert a nuclear confrontation. An assessment of the costs of conflict between India and Pakistan should take into account considerable economic and development losses as well as the low levels of bilateral trade between India and Pakistan. Globalisation of the world economy makes it imperative for India and Pakistan to modify their national security policies with a view towards promoting greater regional integration and pursuit of sustainable development. Enhanced bilateral co-operation is an imperative if Pakistan and India are to strengthen their economies both individually and as regional partners, so as to attract foreign capital from outside and even within the region to widen and diversity their production base. Economic co-operation would protect their individual economies in the face of the rapid pace of globalisation, to maximise the benefits and minimise the costs of the process. Trade liberalisation would not only enhance economic productivity and efficiency it shall also have a positive impact on social welfare and poverty alleviation. The consumers and the government, two major stakeholders, would benefit from lower prices and greater customs revenue from legalising illicit border trade, respectively. Improved transportation links, communications, research and development, regional trade financing, customs co-operation, relaxing travel restrictions for traders would enhance the regional development infrastructure. A sustained multi-tier economic partnership between India and Pakistan will also help build trust and confidence between the two countries. A relationship that is mutually beneficial should motivate the adversaries to move towards the resolution of political differences and become partners in development. Published in association with Regional Centre for Strategic Studies, Colombo.