Abstract
This article analyzes the relationship between exports and non-export GDP in the context of the Indian economy during 1981–2012. We address several overlooked aspects in the previous studies that tested the ELG hypothesis in India. The OLS-based Autoregressive Distributed Lag (ARDL) model is employed to analyze the potential long-run equilibrium relationship. Further, the Error Correction Model within the ARDL framework is applied to examine the short-run and long-run causal relationship between non-export GDP, export, and other variables. Our study indicates that (1) at the aggregate level, exports do not have any significant impact on output of the non-export sector, thereby nullifying the popular export-led growth hypothesis at the aggregate level in India; (2) When we disaggregate exports into merchandise and services exports, the latter has positive spillover effects on the non-export sector of the economy. However, the association between merchandise export and non-export GDP is statistically insignificant. Our results support the internally generated growth hypothesis whereby economic growth in India appears to have been the outcome of non-export factors such as accumulation of capital, employment, and technical progress.
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