IDEAS home Printed from
   My bibliography  Save this paper

Global Financial Crisis : Implications for Trade and Industrial Restructuring in India


  • Prabir De

    (Asian Development Bank Institute (ADBI))

  • Chiranjib Neogi


This study investigates the impact of global crisis shocks on India’s trade and industry. We use both panel data modeling and vector autoregression techniques to understand the dynamic effects of global crisis shocks on Indian industry and trade. The estimated results of panel data models show that changes in trade composition are positively associated with changes in manufacturing composition in India, controlling for other variables. However, there is no strong indication that Indian industry has been severely harmed by the fall in demand in crisis-affected advanced economies such as the United States (US), the European Union (EU), and Japan, holding other things constant. Since there may be lags between changes in composition in export and industry, the study then explores the dynamic effects of global crisis shocks on Indian industry and trade with the help of vector autoregression techniques. The findings of the study indicate that the compositional change in industry has responded significantly to exports to the US, Japan, and the EU in the crisis period. Variance decomposition of compositional change in industry reveals that during the pre-crisis period, almost 100% of the variation in compositional change in industry depended on its own variation, while in the crisis period about 20% of the variation in compositional change in industry has depended on the exports to the EU, Japan, and the US. Therefore, the effect of global crisis shocks of India’s exports to advanced economies during the crisis period has been transmitted to Indian industry. However, Indian industry has not responded significantly to the shocks of imports from the advanced economies, while the response to its own shocks is significant during both pre- and postcrisis periods. The study also indicates that India’s trade openness has responded mildly to the shock of exports to the US. India’s trade with the US, coupled with US GDP, has significantly contributed to the variability of India’s trade openness in the crisis period, accounting for 40% of the variation of the trade-GDP ratio of India, whereas India’s trade with the EU and Japan has had either no effect or very insignificant effect on India’s trade openness. This study suggests that Indian industry has not been significantly harmed by the ongoing global crisis. Even though India continues to enjoy relatively large domestic demand, the compositional change (positive) in the manufacturing sector would decrease if the crisis continues, resulting in a slowdown in growth and a rise in stagnation.

Suggested Citation

  • Prabir De & Chiranjib Neogi, 2011. "Global Financial Crisis : Implications for Trade and Industrial Restructuring in India," Microeconomics Working Papers 23242, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:microe:23242

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Fukunari Kimura & Ayako Obashi, 2011. "Production Networks in East Asia : What We Know So Far," Microeconomics Working Papers 23216, East Asian Bureau of Economic Research.
    2. Obashi, Ayako, 2010. "Stability of production networks in East Asia: Duration and survival of trade," Japan and the World Economy, Elsevier, vol. 22(1), pages 21-30, January.
    3. Daisuke Hiratsuka, 2011. "Production Networks in Asia : A Case Study from the Hard Disk Drive Industry," Microeconomics Working Papers 23235, East Asian Bureau of Economic Research.
    4. Kojima, Kiyoshi, 1975. "International Trade and Foreign Investment : Substitutes or Complements," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 16(1), pages 1-12, June.
    5. Hayakawa, Kazunobu & Kimura, Fukunari, 2009. "The effect of exchange rate volatility on international trade in East Asia," Journal of the Japanese and International Economies, Elsevier, vol. 23(4), pages 395-406, December.
    6. Kimura, Fukunari & Ando, Mitsuyo, 2005. "Two-dimensional fragmentation in East Asia: Conceptual framework and empirics," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 317-348.
    7. Thorbecke, Willem, 2008. "The effect of exchange rate volatility on fragmentation in East Asia: Evidence from the electronics industry," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 535-544, December.
    8. Kojima, Kiyoshi, 1973. "A Macroeconomic Approach to Foreign Direct Investment," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 14(1), pages 1-21, June.
    9. Guillaume Gaulier & Françoise Lemoine & Deniz Ünal, 2011. "China's Foreign Trade in the Perspective of a More Balanced Economic Growth," Working Papers 2011-03, CEPII research center.
    10. Theodore H. Moran, 2011. "Foreign Direct Investment and Development: Launching a Second Generation of Policy Research: Avoiding the Mistakes of the First, Reevaluating Policies for Developed and Developing Countries," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6000.
    11. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(1), pages 1-31, March.
    12. ITO Takatoshi & KOIBUCHI Satoshi & SASAKI Yuri & SATO Kiyotaka & SHIMIZU Junko & HAYAKAWA Kazunobu & YOSHIMI Taiyo, 2008. "Currency Invoicing and Foreign Exchange Risk Management: A Case Study of Japanese Firms (Japanese)," Discussion Papers (Japanese) 08009, Research Institute of Economy, Trade and Industry (RIETI).
    13. Wignaraja, Ganeshan, 2008. "FDI and Innovation as Drivers of Export Behaviour: Firm-level Evidence from East Asia," MERIT Working Papers 061, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    14. Kojima, Kiyoshi, 1977. "Transfer of Technology to Developing Countries -Japanese Type versus American Type-," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 17(2), pages 1-14, February.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Kamel HELALI & Mouna REKIK, 2014. "A re-estimation of the impact of the subprime crisis on the economic growth of some emerging countries: Vector-Error correction model," E3 Journal of Business Management and Economics., E3 Journals, vol. 5(3), pages 063-070.
    2. Ghamz-e-Ali Siyal & Asma Mohsin & Khalid Zaman, 2014. "Financial Soundness and Pakistan’s Economics Growth: Turn on the Light," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 2(9), pages 359-371, September.

    More about this item


    global financial crisis; industrial restructuring; India's trade and industry; trade composition; vector autoregression; Export structure; India;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L7 - Industrial Organization - - Industry Studies: Primary Products and Construction

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eab:microe:23242. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shiro Armstrong). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.