Assessing Direction of India’s Exports: A Dynamic Framework

Abstract

Decision on trade policies with emphasis on bilateral trade relationships needs knowledge about the direction of exports of the exporting country along with associated changes like degree of specialisation, etc. The direction of export for a product or sector can be taken as a set consisting of destination countries (DCs) and corresponding export potentiality. The set reflects the direction, composition and value of trade potentials and helps to decide export-boosting measures of several sectors, focusing on a country. The paper suggests the use of ratio and geometrically aggregated revealed comparative advantage (RCA) values for individual and combined sector growth (positive or negative), respectively. This approach overcomes the static properties of RCA and shift-share analysis typically used to reveal the patterns of trade direction. The pattern is investigated by geometric aggregation of ratios of RCA at the current period over the base period for each sector. The index follows log-normal distribution and shows fluctuations of RCA for a product/sector across time. Such curves of fluctuations for different countries may facilitate meaningful inter-country comparisons. Second, this paper suggests the use of bilateral RCA to determine the direction of India’s exports for a particular sector, enabling the determination of its potential markets. JEL Classification: F1, F4