Exchange Rate, Tariff and Trade Flows: Alternative Policy Scenarios for India

The paper presents a moderately disaggregative model of India's trade flows covering the period 1971-91. It incorporates distinct demand -supply factors, takes into account the effect of relative prices, import tariffs, export subsidies, and levels of economic activity and allows for adjustments in domestic prices in response to exchange rate adjustments. The model is solved forward to assess the impact on trade flows and possible policy implications under the following scenarios: (a) accelerated domestic growth, (b) depreciation of nominal exchange rate, (c) reduction in tariffs and subsidies, and (d) sustained higher world economic growth.