Deficit Conundrums: The Determinants of India’s Export Behavior
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2013
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Haverford College. Department of Economics
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eng
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Open Access
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Abstract
This paper empirically explores the determinants of Indian exports over the past thirty years. This study builds on previous research conducted on the demand and supply factors influencing India’s export behavior and builds an imperfect-substitutes demand-supply simultaneous equation model of export determination. However, this paper is more than just an empirical study of the factors affecting India’s exports. It has broader theoretical implications for the Indian economy including measures to bridge India’s widening trade deficit. The broad findings of this paper are that the supply of India’s exports is price elastic. This suggests that the government should consider pursuing an export-oriented exchange rate policy while striving to maintain low and stable inflation. World demand for Indian exports is also found to play a significant role, suggesting that the government should focus on expanding and deepening ties with fast growing markets to ensure that demand for Indian exports continues to remain buoyant. Finally, the government must focus on diversifying India’s export basket away from commodities such as agricultural products, textiles and clothing towards commodities such as chemicals, fuel and mining products. India has a significant share of world exports in the former, but they account for a declining share of aggregate world exports making diversification imperative.