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Structural Shifts in the Current Account of India's Balance of Payments

Author

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  • Bhupal Singh

    (Bhupal Singh is at the Department of Economic Analysis and Policy, Reserve Bank of India, Mumbai; e-mail: bhupal@rbi.rog.in, bhupalsingh1@gmail.com Views expressed in this paper are personal. The author is deeply grateful to Dr Sarat Dhal, Rajmal and Sangita Misra for their invaluable help and the anonymous reviewer for useful suggestions on the econometrics exercises.)

Abstract

This paper explores structural shifts in the current account of India's balance of payments alongside the micro foundations from 1950 to 2008. Key structural features that emerge are the disappearance of twin deficits and the reversal of a unidirectional causality in the post-reform period from foreign savings to domestic investment. Current account deficit, although sustainable, is marked by a significant structural component after adjusting for remittances. Merchandise trade is characterised by higher quantity growth rather than price growth, a transition from low-technology to medium-technology exports, a shift in trade towards developing countries. Service exports exhibit reduced volatility and diversification from traditional to business and technology-related services. This period also witnessed a spatial shift in the sources of workers’ remittances from oil-producing to developed countries, with the overall behaviour of remittances influenced by the income effect in the host country, exchange rate movement and interest rate arbitrage.

Suggested Citation

  • Bhupal Singh, 2009. "Structural Shifts in the Current Account of India's Balance of Payments," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 3(2), pages 133-171, April.
    • Handle: RePEc:sae:mareco:v:3:y:2009:i:2:p:133-171
    DOI: 10.1177/097380100900300203
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    References listed on IDEAS

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    Cited by:

    1. Khyati Kathuria & Nand Kumar, 2022. "Are exports and imports of India’s trading partners cointegrated? Evidence from Fourier bootstrap ARDL procedure," Empirical Economics, Springer, vol. 62(3), pages 1177-1191, March.
    2. Incaltarau, Cristian, 2010. "Will India become a world economy power?," MPRA Paper 28658, University Library of Munich, Germany.

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    More about this item

    Keywords

    Balance of Payments; Current Account Deficit; International Trade; Workers' Remittances; JEL Classification: F1; JEL Classification: F32; JEL Classification: F24; JEL Classification: O24;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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