Exports Dynamics of India: A Cointegration Analysis

Abstract

We examine the dynamics of Indian exports for the period 1980–2015 using the autoregressive distributed lag (ARDL) approach to cointegration. Specifically, we estimate an export demand function to determine the long-run price and income elasticity of Indian exports. Our results reveal that there is a long-run relationship between exports volume, export price and world GDP (a proxy for trade partner’s income). We find that Indian exports are highly sensitive to its price and income of the trade partners in the long-run. However, the income elasticity is found to be much larger than the price elasticity. To be precise, we find that the long-run price elasticity is -2.17 and the income elasticity is 7.17, and both are statistically significant at 1% level. Our findings suggest that Indian exports are more responsive to its trade partner’s income, which explains the slow growth in Indian exports in the recent years owing to the slowdown in world economic activity.