Abstract
This paper empirically measures the impact of sectoral energy price differential between trading partners on Indian exports. Using dynamic gravity model, we estimate the response of Indian exports for 11 energy-intensive sectors to sectoral-level energy price asymmetry. We observe the absence of the contemporaneous effect of energy price differential on Indian exports, but the presence of persistence effects. We find that a 10% increase in relative energy prices negatively affects Indian sectoral exports by about 1% ranging from 0.9% for chemicals to 1.4% for non-ferrous metals, revealing a larger impact for energy-intensive sectors. These small effects imply that the concerns of carbon leakage are largely overplayed.
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