The Determinants of India's Exports: A Simultaneous Error-Coorection Approach

Author Name Saikat Sinha Roy
Author Name: 
Saikat Sinha Roy

This paper attempts an analysis of changing India’s export behaviour during 1960/61 to 1999/2000. Broadly, there are two sharply divided views on the India’s export behaviour. While the predominant view stresses the importance of supply and policy related constraints, other studies find the significance of world demand in the determination of exports. Most econometric studies find relative price factor, real effective exchange rate in particular, to be significant. The emergence of various export sectors over the period of time does not lend support to the observation that only relative prices play an important role, but highlights the importance of various demand and supply factors at the sectoral level. Individual demand and supply factors can be found to be important for specific short periods, but their confluence very likely determine a long run behaviour. The demand-supply model of export determination, which is based on Goldstein and Khan (1978), is estimated using error-correction method. The study establishes the importance of demand factors such as world demand and real effective exchange rates in the determination of India’s exports as against the relatively weak relevance of supply side determinants. The findings are a definite improvement over the existing studies on India’s exports.