Abstract
India's trade with the major economic groups BRCS, EAC, and SCO revealed that there exists a long-run equilibrium relation between BRCS and SCO group of countries trade with India's economic growth, whereas EAO group of countries does not show any long-run equilibrium relation. It is concluded that 1% change in imports from BRCS countries causes the economic growth to increase by about 0.84% meaning that in the long run, imports from BRCS countries tend to have a significant impact on economic growth, similarly a 1% change in exports to BRCS countries causes the economic growth to decrease by about 0.53%, meaning that in the long run, exports to BRCS countries tend to have a significant impact on economic growth. Similar to BRCS co-integration model, the SCO group of countries' imports are positively affecting, whereas exports are negatively affecting economic growth. The exported items to SCO countries are negatively affecting the economy meaning that exports are not contributing.
TopBackground
The increase of reciprocal trade agreements between pairs and groups of countries over the past few decades has resulted in a plethora of literature addressing the causes of regionalism, their effects of members and non-members, as well as their effects towards promoting global free trade. This study makes a contribution to the literature with reference to investigate the relationship between foreign trade of India with three groups of countries namely BRCS, EAC, and SCO and its impact on India’s economic growth.
Fajana (1979) analyzed the impact of trade on Nigeria’s economic growth. Using a two-gap model, it estimates the relationships between exports, foreign capital, and economic growth. The results of the analysis provided empirical support for the hypothesis that trade has been an important engine of growth in Nigeria.
Feder (1983) investigated the sources of growth in the period of 1964-1973 for a group of semi-industrialized less developed countries. The result found that growth could be generated not only by increases in the aggregate levels of labor and capital but also by the reallocation of existing resources from the less efficient non-export sector to the higher productive export sector.
Kavoussi (1984) examined the relationship between export expansion and economic growth in a sample of 73 developing countries using data for the period of 1960-1978. The study highlighted that in both groups of low- and middle-income countries, export expansion was associated with better economic performance and that an important cause of that association was the favorable impact of exports on total factor productivity. Kavoussi (1984) also demonstrated that the effect of commodity composition of exports on the relationship between export expansion and economic growth was substantial in more advanced developing economies.
Jung and Marshall (1985) performed causality tests between exports and growth for 37 developing countries. The results cast considerable doubt on the validity of the export promotion hypothesis.
Fan (1992a) explored the regional implications of China’s recent open-door policy. The results suggested that foreign trade was more readily translated into economic development in the most well developed and industrialized eastern coastal provinces. Fan (1992b) indicated that foreign trade benefited core provinces and major industrial regions more than other parts of China.
Key Terms in this Chapter
BRICS: The set of countries comprising Brazil, Russia, India, China, and South Africa, especially viewed as an emerging market.
Augmented Dicky Fuller Test: A test that tests the null hypothesis that a unit root is present in a time series sample. The alternative hypothesis is different depending on which version of the test is used but is usually stationarity or trend-stationarity. It is an augmented version of the Dickey-Fuller test for a larger and more complicated set of time series models.
Developing Country: A country with a less developed industrial base and a low Human Development Index relative to other countries.
Economic Growth: An increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.
East African Community: An intergovernmental group which includes Kenya, Uganda, Burundi, Rwanda, and Tanzania that promotes social and economic cooperation.
Foreign Trade: A combined form of commercial transactions between two or more countries in the form of sales, investments, and transportation.
Shanghai Cooperation Organization: An intergovernmental organization that currently comprises eight Member States (China, India, Kazakhstan, Kyrgyzstan, Russia, Pakistan, Tajikistan, and Uzbekistan), four Observer States interested in acceding to full membership (Afghanistan, Belarus, Iran, and Mongolia), and six “Dialogue Partners” (Armenia, Azerbaijan, Cambodia, Nepal, Sri Lanka, and Turkey).