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The sustainability of trade deficits in the presence of endogenous structural breaks: Evidence from the Indian economy

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  • Nag, Biswajit
  • Mukherjee, Jaydeep

Abstract

This study examines the long-run relationship between exports and imports of the Indian economy during 1950–51 to 2008–09. Applying unit root test and cointegration technique that allows for endogenously determined structural break in the relationship, the results do not support the existence of any long-run equilibrium relationship between exports and imports and interest payments on net debt for India. Individually exports and imports have multiple breaks clustered roughly around three periods: early and mid seventies – the ‘comfort period’ in the country's balance of payments; 1986–87 that witnessed a sudden jump in exports trend after experiencing a flat trend in the first half of 1980s; and 1997–98 following the East Asian currency crisis. The findings imply that India's macroeconomic policies have not been very effective to ensure sustainability of trade deficit in the long-run and suggest that India is in violation of its international budget constraint.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 23 (2012)
Issue (Month): 5 ()
Pages: 519-526

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Handle: RePEc:eee:asieco:v:23:y:2012:i:5:p:519-526

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Web page: http://www.elsevier.com/locate/asieco

Related research

Keywords: Trade deficit; Current account deficit; Unit root; Structural breaks; Cointegration;

References

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Cited by:
  1. Daniel Ventosa-santaulària & Manuel Gómez-zaldívar & Lizet A Pérez, 2013. "Long-run relationship with shifts between Mexican current account revenues and expenditures," Economics Bulletin, AccessEcon, vol. 33(2), pages 1317-1327.
  2. Chen, Shyh-Wei, 2014. "Smooth transition, non-linearity and current account sustainability: Evidence from the European countries," Economic Modelling, Elsevier, vol. 38(C), pages 541-554.

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