Journal Press India®

Trade and Economic Growth: The Case of India

Vol 4, Issue 1, January - June 2017 | Pages: 23-42 | Research Paper  

Article has been added to the cart.View Cart (0)

Author Details ( * ) denotes Corresponding author

1. * Simran Sethi, Assistant Professor, Department of Economics, Department of Economics, Delhi, India (

The objective of this paper is to investigate the short run as well as long run relationship between GDP, exports and imports for India using annual data from 1982 to 2016. Through this paper, I examine the four main hypotheses regarding the relation between exports, imports and economic growth. The first one is export-led growth hypothesis, the second one is the import-led growth hypothesis, the third one is the growth-led exports and lastly, the growth-led imports hypothesis. The Johansen’s cointegration is used to examine the long term relationship and empirical results indicate that there is a long run relationship between GDP, exports and imports. The short term relationship is measured using the Granger causality test and the statistical results suggest unidirectional causality from GDP to exports and GDP to imports in conformity with the growth-led exports and growth-led imports hypothesis respectively.


Economic growth; Exports; Imports; India; Cointegration, Granger causality

Bhattacharya, M., &  Bhattacharya, S.N. (2016). International trade and economic growth: Evidences from the BRICS. Journal of Applied Economics and Business Research  JAEBR, 6(2),150-160.


Chakraborty, M. &  Mukherjee, J. (2012). Is there any relationship between foreign direct investment, domestic investment and economic growth in India? A time series analysis. Review of Market Integration, 4(3), 309–337.


Dixit, A. & Stiglitz, J. (1977). Monopolistic competition and optimum product diversity. American Economic Review, 67(3), 297-308.

Dritsakis, N., Varelas, E., & Adamopoulos, A. (2006). The main determinants of economic growth:  An empirical investigation with Granger causality analysis for Greece. European Research Studies, 9(3-4), 47-58.


Dritsakis, N. (2006). Exports and economic growth: An empirical investigation of EU, USA and Japan using causality tests. International Review of Applied Economic Research, 1(2), 79-92.


Emma, S. (2005). Openness and growth: An empirical investigation. Human Development Report Office Occasional Paper, Human Development Report 2005.


Frankel, J. & Romer, D. (1996). Trade and growth: An empirical investigation. National Bureau of Economic Research, Working Paper No. 5476, March.


Gujrati, D.N. (2004). Basic econometrics, (4th Ed.), New York, USA: The McGraw-Hill Companies.


Gurgul, H & Lach, L. (2010). International trade and economic growth in the Polish economy. Munich Personal RePEc Archive, Paper No.52286.


Helpman, E. & Krugman, P.R. (1985). Market structure and foreign trade: Increasing returns, imperfect competition and the international economy. Cambridge, MA, MIT Press.


Hussain, M.E. & Haque, M. (2016). Foreign direct investment, trade, and economic growth: An empirical analysis of Bangladesh. Economies, 4(7), 1-14.


Kapila, U. (2004).  Foreign trade and balance of payments. In Uma Kapila (ed), Indian Economy Since Independence, pp. 526. New Delhi: Academic Foundation.


Krugman, P.R. (2015). International economics: Theory and policy. Pearson Global Edition, 10th Edition.


Makki, S. & Somwaru, A. (2004). Impact of foreign direct investment and trade on economic growth: Evidence from developing countries. American Journal of Agricultural Economics, 86(3), 795-801.


Manni, U., Siddiqui, S., & Afzal, M.N. (2012). An Empirical Investigation on Trade Openness and Economic Growth in Bangladesh Economy.  Asian Social Science, 8 (11), 154-158.


McDermott, J.F.M. (2011). Chamberlin and Robinson: Their realism revisited and revised. Journal of Post Keynesian Economics, 34(1), 159-178.


Melitz, M.J. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695-1725.


Muhammad, S., Muhammad, M.R. & Abdul, F. (2012).  Financial development, international trade and economic growth in Australia: New evidence from multivariate framework analysis. Munich Personal RePEc Archive, Paper No. 42023.


Olufemi, S.M. (2004). Trade openness and economic growth in Nigeria: Further evidence on the causality issue. Department of Economics, Obafemi Awolowo University, SAJEMS NS 7, No 2.


Romer, P.M. (1989). Endogenous technological change. National Bureau of Economic Research, Working paper No.3210.


Shahbaz, M. (2012). Does trade openness affect long run growth? Cointegration, causality and forecast error variance decomposition tests for Pakistan. Munich Personal RePEc Archive, Paper No. 37391.


Srinivasan, T.N (2001). India’s reform of external sector policies and future multilateral trade negotiations. Economic Growth Centre Discussion Paper No.830, Yale University, June.


Srinivasan, T.N. & Tendulkar, S.D. (2003).  Reintegrating India with the world economy. New Delhi, Delhi: Oxford University Press.


Yusoff, B. & Febrina, I. (2014). Trade openness, real exchange rate, gross domestic investment and growth in Indonesia. Margin-The Journal of Applied Economic Research, 8(1), 1-13.

Abstract Views: 243
PDF Views: 155

By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy.