Indo-African Trade: A Gravity Model Approach

There has been a considerable increase in the trade between India and Africa in the last few decades. In recent times, specifically post the global financial crisis of 2008, this trade pattern has exhibited significant rise. The potential of Africa as a trading partner has been realized by not only India but also other countries, and notable among them is China. The present paper analyzes the determining factors of overall trade, export and import of India with the African continent employing the generalized gravity models. The time period considered for the study is 1991–2014. We find the income levels of the trading partners to have a positive and significant impact on the overall trade and imports of India from Africa. The openness of the African nation also plays a positive and significant factor in this context. For the gravity model of exports from India to Africa, GDP of the African trading partner of India holds a positive and significant coefficient implying that as their economy grows, their demand for Indian goods (and services) increases. Interestingly, GNP per capita of India exhibits a negative and significant coefficient implying India’s exports to Africa decreases on account of rise in its per capita GDP. The findings also suggest that when inflation rates in India are high, i.e., money supply growth rate is high, India’s imports from Africa are on a rise. The exchange rate is associated with a negative and significant coefficient. This is indicative of the fact that as exchange rate increases, which means that as Indian currency depreciates with respect to African currencies, the imports of India from Africa deteriorate. The study marks its relevance in the present times as the present government has taken numerous measures to strengthen its economic ties with Africa and also that there is no extensive study on this so far.