Do Macro-Economic Variables Affect Foreign Trade of India? Panel Regression Approach

Abstract

After the crisis in 1991, the Indian government introduced some changes in its Policy on trade, foreign investment, tariffs, and taxes under the name of New Economic Reforms. The main focus of these reforms has been on liberalization, openness, and export promotion activity. The paper focuses on the impact of development variables on export from India. Developmental variables include infrastructure, human resource, openness, production & market, research & development, resources, and taxation. Each development variable consists of a set of related variables. The paper has used principal component analysis (PCA), composite index and panel regression model. These help to know impact of individual developmental variable on Indias export. The period of study is 1990 – 2013. The value of KMO is over 0.6 indicating the samples are adequate and the value of Bartletts test is less than 0.05 ensure suitability of PCA. The overall growth rate Indian foreign trade is 3 percent during last more than two decades. Main macro-economic variables are infrastructure, resources, and taxation. The government should strengthen and incorporate these macro-economic variables while making foreign trade policy (i.e. EXIM policy) policy under the umbrella of WTO.

Keywords: Exports, Economic Development, Trade, International Trade, India

View PDF