Trade Potential of India against BRCS Economies: An Empirical Analysis based on Gravity Model

Abstract

This article sheds light on the potential of trade of India against BRCS economies by employing the Gravity Model. The study period is covering 22 years from 1995-2016. The gravity models for both 1995 and 2016 fit the data well and explain 75 percent and 76 percent of the variation in bilateral trade across sample of countries, respectively. The results are hetero-corrected, multicollinearity and auto correlation free. The coefficient of product of GDP, per capita GDP, and openness variable are positive and highly significant as expected whereas the dummy variable, RTA, is not found significant. The per capita GDP differential has negative and statistically significant effect on bilateral trade flows for both 2016 and 1995 data and support the Linder hypothesis. The results show that considerable potential exists on individual country basis. Thus, India needs to concentrate on trade from emerging countries that are liberalizing their markets for economic expansion.