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India's Global Trade Potential: The Gravity Model Approach

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  • Amita Batra

Abstract

In this article an augmented gravity model equation has been used to analyze the world trade flows using a sample of 146 countries. The coefficients thus obtained are then used to predict trade potential for India. Ordinary Least Squares with cross-section data for the year 2000 have been used for estimation. The results show that all three traditional “gravity” effects are intuitively reasonable, with statistically significant t-statistic often exceeding 50 in absolute value. Alternative measures of gross national product (GNP) dollar value and purchasing power parity do not alter either the sign or significance of different explanatory variables. Historical and cultural similarities also impact positively upon bilateral trade. As concerns India's trade potential, the model shows that there is tremendous potential with China and trade can more than double if barriers and constraints are removed. Our estimates also indicate a huge potential, of the order of US$6.5 billion, with Pakistan.

Suggested Citation

  • Amita Batra, 2006. "India's Global Trade Potential: The Gravity Model Approach," Global Economic Review, Taylor & Francis Journals, vol. 35(3), pages 327-361.
  • Handle: RePEc:taf:glecrv:v:35:y:2006:i:3:p:327-361
    DOI: 10.1080/12265080600888090
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    References listed on IDEAS

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    1. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
    2. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters,in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
    3. Edward Christie, 2001. "Potential Trade in Southeast Europe: A Gravity Model Approach," wiiw Balkan Observatory Working Papers 11, The Vienna Institute for International Economic Studies, wiiw.
    4. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate of the Effect of Common Currencies on Trade and Income," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 437-466.
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    1. repec:rge:journl:v:5:y:2017:i:2:p:93-107 is not listed on IDEAS
    2. repec:ibn:ijefaa:v:10:y:2018:i:1:p:204-212 is not listed on IDEAS
    3. E. Mine Cinar & Joseph Johnson & Katherine Geusz, 2016. "Estimating Chinese Trade Relationships with the Silk Road Countries," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 24(1), pages 85-103, January.
    4. Yeshineh, Alekaw Kebede, 2016. "Determinants and Potentials of Foreign Trade in Ethiopia: A Gravity Model Analysis," MPRA Paper 74509, University Library of Munich, Germany.
    5. Narayan, Seema & Nguyen, Tri Tung, 2016. "Does the trade gravity model depend on trading partners? Some evidence from Vietnam and her 54 trading partners," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 220-237.
    6. Sultan, Maryam & Munir, Kashif, 2015. "Export, Import and Total Trade Potential of Pakistan: A Gravity Model Approach," MPRA Paper 66621, University Library of Munich, Germany.

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