|Title:||India merchandise exports by selected sectors/items in dollar values and as a percentage of exports for the period 2009 to 2010|
|Source:||Indian Journal of Economics and Business|
Start of full article - but without data
India's Merchandise Exports of Select Items (2009-XX)
Items Export Share in Exports (US $ Mn.) (Per cent)
Agriculture & allied products XXXXX.X X.X Chemicals & related products XXXXX.X XX.X Engineering goods XXXXX.X XX.X Textile & textile products XXXXX.X XX.X Gems & jewellery XXXXX.X XX.X Petroleum Products XXXXX.X XX.X Others XXXX.X X.X
Source: Handbook of Statistics on Indian economy, 2009-XX, RBI.
Over the past few decades, while trade has contributed significantly to economic growth in various economies including India, openness has also exposed them to vagaries of external shocks. While recent global financial crisis (GFC) essentially originated in advanced economies, it got transmitted to emerging market economies through three main channels viz., financial, trade, and confidence channel. Relatively, while financial channel had a more dominant role in transmitting global shocks to Indian economy, its growing trade openness had led to decline in both exports and imports from the latter half of 2008 till 2009. Against this backdrop, this study primarily focuses on studying the impact of trade shock emanating from GFC on the Indian economy. In empirical analysis, it is found that the impact of recent trade shock on the economy remained minimal and short-lived. Under S-VAR framework (quarterly data from 1996-XX to 2009-XX), impulse response analysis suggests that the impact of export demand on India's gross domestic product (GDP) persists for a short while, which is validated by recent strong rebound of the economy in the aftermath of global financial crisis. This is in line with our expectations as GDP growth in India is primarily driven by domestic consumption, while external demand plays a minimal role.
Key words: Trade, Financial Crises, Open economy, India
In the series of financial and currency crises of the 1990s (Mexican crisis, 1994; East Asian crisis, 1997-XX; Brazilian crisis, 1999) including the recent global financial crisis, the crises first originated in a country or a region but got transmitted to other economies as a contagion. In all these crises, trade had been an important channel of transmission of crisis to other countries. In the recent global financial crisis, three main channels of transmission of crisis to the emerging market economies (EMEs) including India were the financial channel, trade channel, and confidence channel. Financial channel caused wild disruptions in the financial markets impacting the equity and money markets badly. Trade channel impacted the roots of the real sector causing decline in real economic activity following a decline in production and investment activities, which resulted in unemployment, largely in trade dependent sectors. The confidence channel operated through the equity markets, wherein sharp decline in prices of scrips across the board caused decline in business and consumer confidences. In India, all these transmission channels operated; albeit their strengths varied. In the Indian case, financial channel was found to be more dominant as compared to trade channel (RBI, 2010). While the adverse impact of global financial shocks were felt immediately by the Indian economy in mid-2007 as the capital market started jolting, trade sector was not impacted immediately. Rather, the trade channel of the contagion intensified only in the aftermath of collapse of the investment bank--Lehman Brothers--in mid-September 2008. It was at this time that the crisis adversely impacted India's merchandise trade as both exports and imports declined swiftly and substantially.
Of the three channels, the present Study primarily focuses on the role of trade in spreading the contagion of global financial crisis to the Indian economy. This assumes importance as a better understanding of how the trade shock affected the Indian economy would help policy makers in designing counter-cyclical policies. The trade channel transmitted the adverse global shocks to the Indian economy both through merchandise trade and services (invisibles) trade. Nevertheless, for the sake of brevity and simplicity, our study is primarily focused on analyzing the trade comprising only the merchandise trade.
Though there is an abundant literature on trade and growth linkages, literature on the area as to how shocks in trade (export) might affect economic growth of a country is scanty. Against this backdrop, this paper seeks to bridge the gap in literature by presenting such an analysis for the Indian economy. Our analysis in this regard has a number of distinctive features differentiating it from earlier studies. First, our study is carried out focusing on a single country--India. Second, our analysis is based on high frequency (quarterly) data, which presents a more realistic assessment of the economy.
The remainder of the paper is organized as follows: Section II presents select literature review. Section III deals with the issue of openness and growing linkage of India's external sector with the global economy. Section IV analyses recent trends in India's merchandise trade. Section V describes how trade acted as a conduit in the transmission of global financial crisis to the Indian economy. Section VI highlights the sectoral impact of contraction in India's trade in respect of select merchandise exportable goods. Section VII carries out empirical analysis. Concluding observations of the paper are set in section VIII.
II. LITERATURE SURVEY
In the empirical literature, the role of trade links in the international transmission of crises has been studied extensively. Despite theoretical ambiguities, some authors have demonstrated that countries trading more intensively also exhibit a higher degree of output co-movement (Frankel and Rose, 1998). On the issue whether trade linkages have been important in international transmission of crises, literature is divided into three camps. One set of literature argues that international trade linkages were important in transmission of crisis from one country to another (Eichengreen and Rose, 1999). A contrarian set of literature contend that trade linkages have not been important, especially in the spread of some of the past crises, viz. Mexican, Asian, Russian crises (Mason, 1998; Harrigan, 2000). A third strand of literature attaches importance to trade linkages as medium of transmission of crises to other countries but argue that though trade linkages are important, but they are overshadowed by other transmission mechanisms (Akin, 2006). Consolidated literature review on the issue is presented below.
S. No. Studies Characteristics Main Findings of Study
X. Frankel and Empirical Authors show that trade, and Rose (1998) estimation more generally economic integration among countries, can result in increased synchronization of business cycles between individual countries, since trade links serve as a channel for transmission of shocks between countries.
X. Eichengreen Binary probit They studied XX industrial and Rose (1999) model countries for the period 1959-1993 and supported the idea that trade links rather than macro-economic similarities was the dominant channel for contagious international transmission of shocks.
X. Forbes (2001) Empirical It establishes that trade estimation for a linkage is important sample of XX determinant of a country's countries during vulnerability to crises that XX crises during originate elsewhere in the the period 1994 world. It explains that trade to 1999. can transmit crises internationally via three distinct and possible counteracting channels: a competitiveness effect, an income effect, and a cheap import effect.
X. Glick and Sensitivity For understanding the role of Rose (1999) tests trade in the international transmission of crises, the authors focus on five major currency crises between 1971 and 1997 and test if the probability of a country being attacked during a currency crisis is also affected by trade linkages between that country and crisis-hit country. They found that a stronger trade linkage is associated with a higher incidence of currency crises.
X. Harrigan (2000) Examines how He rejected the trade channel the Asian crisis and found that the impact of affected prices Asian crisis on the US and volumes in industries was small, different US localized, and modest. manufacturing sectors.
X. Masson (1998) Examined He categorized trade as a specific spillover' and showed that it ...