Measuring Potential and Performance of Indo-ASEAN International Trade Using Gravity Model Approach

Abstract

International trade is a key component of the global growth strategy. It is a tool that can carry the changes needed in the countries' factor-endowments. Keeping factor-endowment in mind we find an enormous potential for India's exports to ASEAN economies to increase, taking into account the inherent advantages of different product categories. During the pre and post-ASEAN-India Free Trade Agreement (AIFTA), India's trade ties with ASEAN have changed. The current research uses the 2010 to 2019 panel data to apply the gravity model of foreign trade between India and ten ASEAN members. The Trade Flows, GDP, Distance, Population, Border Sharing, and Common Language panel data obtained from the official website of DGFT (directorate general of foreign trade), WTO, and CEPII database are used for this purpose. In the current study, we have used an extension of the original model (by Walter Isard in1954) to establish the gravity model of international trade between India and ASEAN countries. To create a gravity model of international trade, the ordinary least square gravity model method was applied to the collected data. It was found that there is a trade opportunity between India and ASEAN countries from the findings of gravity trade models. The Indo-ASEAN trade relationship between goods and services will continue to be a mutually beneficial relationship that will enhance the effectiveness of capital markets, encourage investment, and create new opportunities for India and ASEAN to deepen trade.