Export-led Growth in India and the Role of Liberalisation

The literature on export-led growth in India is voluminous but inconclusive. This study re-examines the export–output relationship over the 1960–2009 period, and finds strong evidence of export-led growth for India. While there is no long-run cointegration relationship between India’s exports and output, tests of causality and impulse responses show a significant positive impact of export growth on output growth in the short run. Autoregressive models of India’s output growth also reveal the significant role of export growth over the same period. This result remains robust regardless of testing exports with different measures of output. The short-run impact of export on output, however, becomes insignificant in all types of estimation once the sample is reduced to the pre-liberalisation era from 1960 to 1991. Hence, liberalisation appears to have significantly contributed to export-led growth in India. We work with quarterly data as well over the liberalisation regime from 1996Q2 to 2010Q4 and find consistent results on export-led growth for India. Thus, export-led growth appears to be a liberalisation phenomenon for India. These findings have implications for other developing economies that aspire to grow fast but confront dilemmas with trade liberalisation policy.JEL Classification: F41, F43, C32, O53