WHETHER THE ECONOMIC GROWTH OF INDIA IS TRADE OPENNESS LED?

Abstract

The prime aim of the paper is looming around the doubt whether the economic growth of India is trade openness led? If yes, whether the trade openness led growth could be a short term or a protracted-term phenomenon. To check this, the paper took the annual time series data on the GDP per capita income as a proxy for economic growth, and also the different standards of trade openness like the amount of exports and imports as a percentage of GDP, export and import of products and services as a percentage of GDP, and per cent of World exports and imports. The model is grounded on the extended version of the Cobb-Douglas production function. The short-run and long- term dynamics of the connection between trade openness and economic growth is analyzed by employing Toda Yamamoto’s Granger’s non- causality test, Johansen’s Maximum Likelihood test and Fully Modified Ordinary Least Square model. The findings of the study exposed that the GDP per capita income is positively statistically explained by the trade openness, exports of goods and services as per cent of GDP, imports of goods and services as a percentage of GDP, per cent of total World exports, capital investment, and labor force participation rate. There exists a long-run equilibrium relationship between the economic growth and trade openness indicators considered within the study. The positive impact of trade openness on economic growth suggests that India should give more emphasis on the optimal allocation of domestic resources, technological progress and knowledge spillovers and encourage integration and competition among domestic and international markets.