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Exchange Rate Uncertainty and India’s Bilateral Trade: A Gravity Model Approach

Author

Listed:
  • Devleena Majumdar
  • Soumyabrata Basu

Abstract

Through a gravity model, the paper attempts to analyse the impact of exchange rate uncertainty on India’s gross bilateral trade flows between its top five trading partners and its SAARC partners. Categorising the industries into five segments, namely, agricultural raw materials, chemicals, textile and clothing, metals and all other commodities, over 18 years (2000–2018), a panel data technique has been applied to examine the effect. The empirical result suggests that even though an exchange rate uncertainty shrinks the bilateral trade flows of agricultural raw materials for SAARC members, it enhances the trade flows across all industry verticals for the top five trading partners. Following the gravity model of trade, the study further suggests that the volume of bilateral trade between countries is proportional to the product of each country’s economic growth and inversely proportional to the distance between them. JEL: F10, F14,O24,D81

Suggested Citation

  • Devleena Majumdar & Soumyabrata Basu, 2025. "Exchange Rate Uncertainty and India’s Bilateral Trade: A Gravity Model Approach," Arthaniti: Journal of Economic Theory and Practice, , vol. 24(2), pages 207-219, December.
    • Handle: RePEc:sae:artjou:v:24:y:2025:i:2:p:207-219
    DOI: 10.1177/09767479231178953
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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