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India’s Trade Deficit with China: Will Free Trade Agreement (FTA) Work for India?

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  • Kaliappa Kalirajan

    (Department of International Economics, Crawford School of Public Policy, The Australian National University, Canberra, ACT 0200, Australia)

  • Ramesh Paudel

    (Arndt-Cordon Division of Economics, Australian National University, Canberra, ACT, Australia)

Abstract

Trade between India and China has been rising exponentially with a widening trade deficit for India, which has raised alarm by businesses, and some Indian parliamentarians have started accusing China for unfair trade practices. Nevertheless, both countries intend to negotiate for free trade arrangements between them based on complementarity. This study examines how much reduction in trade deficit due to different preferential trading arrangements is feasible under hypothetical full export potential scenarios using a stochastic frontier gravity model. The empirical analysis shows that India’s potential gain is high when the influence of India’s existing “behind the border” constraints are eliminated.

Suggested Citation

  • Kaliappa Kalirajan & Ramesh Paudel, 2015. "India’s Trade Deficit with China: Will Free Trade Agreement (FTA) Work for India?," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 15(4), pages 485-505, December.
    • Handle: RePEc:wsi:gejxxx:v:15:y:2015:i:04:n:gej-2015-0011
    DOI: 10.1515/GEJ-2015-0011
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    References listed on IDEAS

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    Cited by:

    1. Raghuvir Kelkar & Kaliappa Kalirajan, 2020. "Has India achieved its potential efficiency in merchandise exports?," ASARC Working Papers 2020-09, The Australian National University, Australia South Asia Research Centre.
    2. Riaz, Kainat & Siddique, Hafiz Muhammad Abubakar & Audi, Marc & Sumaira, Sumaira, 2024. "Impact of Financial Development on Export Performance: Evidence from South Asia," MPRA Paper 122474, University Library of Munich, Germany.

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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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