Effects of terms of trade and its volatility on economic growth in India

This study investigates the effect of terms of trade and its volatility on economic growth in India by using the annual time series data from the period 1980 to 2010. Cointegration results suggest the significant positive long run relationship between terms of trade and economic growth. On the other hand, volatility of terms of trade has negative and significant effect on economic growth. Sensitivity analysis confirms that the results are robust. It is concluded that beneficial and less volatile terms of trade is better for economic growth in India. Policy makers should focus on diversifying Indian exports to minimize the volatility in terms of trade to ensure economic growth in the country.