Real exchange rates and manufactured exports: A study of India's potential exports to the U.S.A.

Abstract

This article presents an empirical analysis of India's exports of manufactured items to the U.S.A. It has a two fold objective of (a) identifying items at the SITC 3-digit level of disaggregation which could be considered potential exports from India to the U.S. and (b) econometrically estimating the role of real exchange rates in exploiting India's export potential in these markets. In the list of potential exports we find both simple labor intensive manufactures (traditional and non-traditional) as well as technologically sophisticated products. For most of the items in both categories, India's real exchange rate appears to be a significant determinant of market share. The article, therefore, concludes that within the framework of its new economic policy with a clear thrust on getting the exchange rate right, India can expect to improve its export performance to a considerable extent.