Trade Flow of India with BRICS Countries: A Gravity Model Approach

Abstract

In this article, we tried to investigate the trade flow of India with the rest of the Brazil, Russia, India, China and South African (BRICS) countries. To do this, we augmented the gravity model of trade by incorporating time-invariant variables such as per capita gross domestic product (PCGDP), distance, language, etc. We used a panel data econometric model (i.e., pooled ordinary least squares—OLS, fixed effect model) and Poisson–Pseudo Maximum Likelihood (PPML) methods. The sample size consists of BRICS countries and top merchandise export partner countries of India over the period of 2001–2016. The empirical results revealed that the traditional arguments of the gravity model in the context of India are valid. However, as distance increases, export of goods is adversely affected due to a higher trade cost. Moreover, common official language and common border positively influence trade. In addition, evidence on marginal trade creation (21% above the normal level) has been observed. The study suggests that the Indian government should negotiate trade dialogues to resolve trade barriers and market access hurdles among the BRICS countries. This will increase exports among nations. Thus, trade relationship among the BRICS members needs to be addressed on a priority basis.