Impact of Exchange Rate and Inflation on the Export Performance of the Indian Economy: An Empirical Analysis

Abstract

Since liberalisation, exports have been playing an increasingly crucial role in India’s economic performance. This research paper is an attempt to analyse the determinants of exports in India, with special reference to inflation and exchange rate in the wake of this unprecedented importance of export in Indian economy. The main data for the study is collected from the RBI Database 2020 over a period of 25 years (1995 to 2020). The study was conducted employing econometric techniques like Augmented Dickey Fuller (ADF) Test, Johansen’s Co-integration Maximum Likelihood Test and Vector Error Correction Model (VECM). In order to study the stationary properties of the variables, the long run relationship among the macroeconomic variables and export, and the dynamic interrelationship among the variables of the model, respectively. The results derived from this study suggest that all variables are statistically significant for influencing the export performance, that is, exchange rate and inflation are found to have positive impact on export performance in India. These findings suggest some policy implications in managing inflation and the exchange rate system to promote export in India, and thereby achieve the overall growth rate of the economy.