Abstract
The centre interest of the study is to explore the impact of exchange rate volatility on the India-U.S. trade flow of Import on 6 industries spanned from September 2002 to June 2019. We investigate the relationship at disaggregate level by industry-wise data with monthly frequency. We employ exponential generalized autoregressive conditional heteroscedasticity (E-GARCH) model to gauge volatility and thereafter ARDL bound testing approach to unveil the short and long-run association of real exchange rate volatility and import. The empirical analysis implies the existence of both short-run and long-run effect in 5 importing industries except manufactured (engineering) goods. While real exchange volatility appears to have statistically significant effect in short-run, but also estimated short-run lasts onto long-run effect in only three industries. The results confirm the information of import in time-series analysis. The finding of the study helps to undertake the view of invariability and considering the industry before policy making.
Highlights
India’s trade direction changed since 1991, the evident rise in the trade share with U.S was seen
Does exchange rate volatility discourage the bilateral trade of import between India and U.S.? To lay out this, this study is an attempt to analysing the impact of exchange rate volatility on import at disaggregates level which is industry level
For the concision of presentation, only coefficient estimates of short-run exchange rate volatility and coefficient estimates of long-run of all the variables are reported in Table 4, where its diagnostic statistics description is in Table 5 respectively
Summary
India’s trade direction changed since 1991, the evident rise in the trade share with U.S was seen. India has been self- sufficient on the terms of trade earlier to 1990s, the strict government focused on high tariff rates and bewildered on administrative restrictions and licenses. After 1991, government introduced trade policy regime including reduction in import tariffs, decanalisation and removal restrictions on import. There was radical change observed by reducing the tariff and non-tariff and introduction of exchange rate regime which further strengthened the India’s trade energy. Does exchange rate volatility discourage the bilateral trade of import between India and U.S.? This study is an attempt to analysing the impact of exchange rate volatility on import at disaggregates level which is industry level Does exchange rate volatility discourage the bilateral trade of import between India and U.S.? To lay out this, this study is an attempt to analysing the impact of exchange rate volatility on import at disaggregates level which is industry level
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