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

Author

Listed:
  • 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

    as
    1. Mr. Tim Callen & Mr. Paul Cashin, 1999. "Assessing External Sustainability in India," IMF Working Papers 1999/181, International Monetary Fund.
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    3. Jagdish N. Bhagwati & T. N. Srinivasan, 1975. "Foreign Trade Regimes and Economic Development: India," NBER Books, National Bureau of Economic Research, Inc, number bhag75-1.
    4. R Hal Mason & Francis G Masson, 1974. "Balance of Payments Costs and Conditions of Technology Transfers to Latin America," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 5(1), pages 73-89, March.
    5. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    6. Mrs. Poonam Gupta, 2005. "Macroeconomic Determinants of Remittances: Evidence from India," IMF Working Papers 2005/224, International Monetary Fund.
    7. Singh, Bhupal, 2006. "Worker’s remittances as stable financial flows: some evidence from India," MPRA Paper 22225, University Library of Munich, Germany.
    8. Brown, Richard P. C., 1997. "Estimating remittance functions for Pacific Island Migrants," World Development, Elsevier, vol. 25(4), pages 613-626, January.
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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

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    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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