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Modelling Effects of Tariff Liberalisation on India’s Key Export Sectors: Analysis of the EU–India Free Trade Agreement

Author

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  • Sangeeta Khorana

    (Sangeeta Khorana is at the Bournemouth Business School, Bournemouth University, United Kingdom. She is the corresponding author, emails: skhorana@bournemouth.ac.uk; sangeetakhorana@hotmail.co.uk)

  • Badri G. Narayanan

    (Badri G. Narayanan is at the School of Environmental and Forestry, University of Washington, Seattle, WA, USA, email: badrig@uw.edu)

Abstract

Trade agreements are increasingly being negotiated between developed and emerging economy partners. An example is the EU–India Free Trade Agreement (FTA) for which negotiations began in 2007. There has been a debate on the potential effects of the proposed FTA and how this can impact on India’s key export sectors. Our study addresses this aspect from a global computable general equilibrium (CGE) modelling perspective. Using the Global Trade Analysis Project (GTAP) framework, we analyse trade and welfare impacts of the proposed FTA between the EU and India. Two scenarios are modelled: first, complete and immediate elimination of tariff on all goods traded and second, selective tariff elimination on textiles, wearing apparel and leather goods—products in which India has a comparative advantage. Results under both scenarios show that India enjoys positive welfare effects though there is a possibility of trade diversion. Under scenario 1, India loses due to a negative terms of trade (ToT) effect. Under scenario 2, with selective sectoral liberalisation, gains are mainly concentrated in the textiles, wearing apparel and leather sectors. There is a positive output effect from change in demand for factors of production, suggesting that the proposed FTA could lead to relocation of labour-intensive production to India. JEL Classification: F15, F47, F62

Suggested Citation

  • Sangeeta Khorana & Badri G. Narayanan, 2017. "Modelling Effects of Tariff Liberalisation on India’s Key Export Sectors: Analysis of the EU–India Free Trade Agreement," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 11(1), pages 1-22, February.
  • Handle: RePEc:sae:mareco:v:11:y:2017:i:1:p:1-22
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    Cited by:

    1. Pham Hoang Linh & Nguyen Khanh Doanh & Nguyen Ngoc Quynh, 2019. "Determinants of Vietnam`s potential trade: a case study of agricultural exports to the European Union," Asian Journal of Agriculture and rural Development, Asian Economic and Social Society, vol. 9(1), pages 33-46, June.

    More about this item

    Keywords

    Economic Integration; Forecasting and Simulation; Macroeconomic effects;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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