Will India’S Trade Deficit Ever Converge To Zero?- An Application Of Bounds Testing Approach To Co-Integration
We have tried to examine whether India’s trade deficit, the excess of imports over exports, will ever become zero in the long run. The Bounds Testing Approach(BTA) developed by Pesaran, et al.,(2001) is applied to the Husted(1992)’s inter-temporal budget constraint with 47 pairs of the real values of exports, Rs. Crore, and imports, Rs. Crore, of India. BTA, which is an autoregressive distributed lag model, is preferred to the conventional methods of co-integration or error correction because BTA does not require a prior the stationarity of the time series variables involved in an empirical study. The optimum lag order of our BTA model turns out to be 5, which is determined in accordance with the Akaike information criterion, Schwartz Bayesian Criterion, and Jarque-Bera test of normality. The results show that India’s exports and imports are co-integrated. Exports and imports are linked to each other in a fixed manner. This finding is also supported by Engle and Granger(1987)’s method of co-integration. But, the Husted’s export equation indicates that the co-efficient of the augmented imports is 0.898, which is statistically significant at 1% level. Since the coefficient is less than unity but positive, the trade deficit will continue widening and may become a serious problem in the near future for India to deal with. Perhaps, India’s economic reforms with regard to trade openness will have to be modified so that the trade deficit could be reduced or kept within sustainable limits.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 10 (2010)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.usc.es/economet/eaa.htm|
|Order Information:|| Web: http://www.usc.es/economet/info.htm Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- S. Mahendra Dev, 2008. "India," Chapters, in: Handbook on the South Asian Economies, chapter 1 Edward Elgar Publishing.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-276, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Arize, Augustine C., 2002. "Imports and exports in 50 countries: Tests of cointegration and structural breaks," International Review of Economics & Finance, Elsevier, vol. 11(1), pages 101-115, April.
- M.Upender, 2007. "Long Run Equilibrium Between Indias’S Exports And Imports During 1949-50 -2004-05," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1), pages -.
- Mohsen Bahmani-Oskooee & Hyun-Jae Rhee, 1997. "Are Imports and Exports of Korea Cointegrated?," International Economic Journal, Taylor & Francis Journals, vol. 11(1), pages 109-114.
- KONYA, Laszlo & SINGH, Jai Pal, 2008. "Are Indian Exports And Imports Cointegrated?," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(2), pages 177-186.
- Husted, Steven, 1992. "The Emerging U.S. Current Account Deficit in the 1980s: A Cointegration Analysis," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 159-166, February.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
When requesting a correction, please mention this item's handle: RePEc:eaa:aeinde:v:10:y:2010:i:1_15. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (M. Carmen Guisan)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.