Extrapolative Modeling of International Trade using ARIMA Model: A Performance Comparison between India and China during COVID-19

Preeti Sharma

doi:10.53739/samvad/2020/v21/155148

Abstract

A reshaping of the global supply chain is on the cards with companies searching for alternative supply choices, with the current instability in China and with some countries planning to pull their businesses out of China. India has already earned the reputation of being a responsible and trustworthy nation with efficient and participatory governance in these times of crisis. In the light of this scenery, the current study contrasts the success of Indian and Chinese foreign trade with the rest of the world.The merchandise trade and commercial service exports and imports from both countries with the rest of the world were obtained from the official WTO website to compare the output (deviation of actual from projected during COVID-19) of Indian and Chinese foreign trade with the rest of the world. The present research employs models of ARIMA using a three-step model creation process (i.e. model recognition, model estimation and diagnostic check). For the identification of the appropriate model ADF, PP Test, KPSS test and Auto-correlation function and partial auto-correlation function were used, approximate models were developed based on the defined p, d, q order and finally the diagnostic Box- Ljung test was carried out. The results show that China has favorable merchandise trading conditions while India is in a stronger spot in the case of trade in services.

Highlights

India’s response to the pandemic has so far been swift and prudent
There are a number of tests available to check the stationarity of time series data but for current study uses the Augmented Dickey–Fuller (ADF) and the PhilipsPerron (PP) test to check the stationarity of series
Both the Augmented Dickey–Fuller (ADF) and the Philips-Perron (PP) are sometimes unable to reject the null hypothesis about non stationarity so just to be more confirm on results the study employs the Kwiatkowaski–Philips– Schmidt–Shin (KPSS) unit root test

Summary

Introduction

India’s response to the pandemic has so far been swift and prudent. Knowing the severity of an uncontrolled outbreak, the government has taken a timely decision on a full shutdown to carry out social distancing effectively. While the efforts to revive the domestic economy are in the right direction, we can simultaneously begin to look at the effects of the crisis on international trade and investment and the lessons that India can learn to devise its future trade and investment strategy. According to the WTO, “in 2020, world trade is expected to decline between 13% and 32% as the COVID-19 pandemic disrupts normal economic activity and worldwide life.” With this kind of prediction, in the near future, the prospects for global trade and investment look rather bleak. India has already gained a reputation in these times of crisis for being a responsible and trustworthy country with efficient and participatory governance This needs to be balanced with an effort to improve the competitiveness of India in areas with export potential that can become essential components of the global value chain. The last section identifies the outcome of the analysis undertaken, its implications and future research directions

Review of Related Literature

Data Descriptive and Analytical Framework

Econometrics Model Building

Empirical Results

Threats to Validity

Conclusion and Future Research