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Impact of services trade on economic growth and current account balance: Evidence from India

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  • Mini P. Thomas

Abstract

This paper aims to study the impact of services trade on India’s economic growth and current account balance during the post-reform period. Earlier studies on this subject have mostly looked at the goods sector. Indian studies which analysed services-led growth from a balance of payments perspective suffered from a bias of having focused only on call-centre exports. In such a context, this study brings in a novel approach by using the Balance of Payments Constrained Growth model and autoregressive distributed lag cointegration to estimate the balance of payments equilibrium growth rate for India’s service sector. The key service sub-sectors are also identified using input–output tables and the TIVA database. This study finds that India’s service sector is growing at a rate almost equal to its balance of payments equilibrium growth rate under the assumption of constant relative prices in international trade, and at a rate lower than the equilibrium growth rate when this assumption is relaxed. Among the major services in India’s export basket, construction, transport and business services are found to exhibit strong backward linkages. Foreign value-added content in India’s services exports is found to be highest in the case of business services, transport services and telecommunications.

Suggested Citation

  • Mini P. Thomas, 2019. "Impact of services trade on economic growth and current account balance: Evidence from India," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(3), pages 331-347, April.
    • Handle: RePEc:taf:jitecd:v:28:y:2019:i:3:p:331-347
    DOI: 10.1080/09638199.2018.1538383
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    Cited by:

    1. Gnangnon, Sèna Kimm, 2020. "Aid for Trade and Services Export Diversification in Recipient-Countries," EconStor Preprints 210467, ZBW - Leibniz Information Centre for Economics.
    2. Sèna K. Gnangnon, 2021. "Aid for Trade and services export diversification in recipient countries," Australian Economic Papers, Wiley Blackwell, vol. 60(2), pages 189-225, June.
    3. Michel Lioussis & Mònica Serrano, 2022. "Services trade contribution on global income generation (2000 - 2014) Abstract: This paper investigates the contribution of services trade to the variation of global income generation for the period o," UB School of Economics Working Papers 2022/423, University of Barcelona School of Economics.
    4. Suwastika Naidu & Anand Chand & Atishwar Pandaram & Sunia Vosikata, 2024. "Electricity Consumption, Renewable Energy Production, and Current Account of Organisation for Economic Co-Operation and Development Countries: Implications for Sustainability," Sustainability, MDPI, vol. 16(9), pages 1-21, April.

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