Are exports and imports of India’s trading partners cointegrated? Evidence from Fourier bootstrap ARDL procedure

Abstract

The paper assesses the long-run relationship between India’s exports and imports with its 21 major trading partners using bootstrap autoregressive distributed lag bounds test procedure with a Fourier function. The study uses monthly data for the period 2014 (Month 01) to 2020 (Month 02). The empirical results show cointegration for 6 countries if imports are used as the dependent variable but not when exports are used as a dependent variable. However, for the remaining countries, no cointegration between exports and imports was found. This indicates that India’s efforts to reduce its bilateral imbalances through trade policies with these countries may not be appropriately targeted. Having established a long-run relationship, the study estimates a disaggregated bilateral import demand function by employing a linear and nonlinear autoregressive distributed lag model to investigate the asymmetric impact of the relative price changes on the import demand of India with her trading partners. Marshall–Lerner condition is satisfied for India’s trade with Kuwait and Germany in case of linear autoregressive distributed lag model and with Qatar, Kuwait and Germany in case of nonlinear autoregressive distributed lag model. Cumulative asymmetries are established for Indo-Kuwait trade.