Impact of European Union and ASEAN Countries on India’s Trade Volume Using Gravity Model : A Panel Data Approach

The striking aspect of India's expanding presence in global trade is related to India's increased integration with Asian countries. While the dominance of developed countries in India's trade has reduced since the late 1990s, the shares of Asian developing countries in India's exports and imports have gone up significantly. Although developed countries, despite a decline in their share over time, continue to remain more important as destinations of India's exports, the gap between the shares of developed countries and Asian developing countries in India's imports has reduced more sharply. That is, Asian developing countries have increasingly gained more importance as sources of India's imports. India's foreign trade policy is mainly focused on increasing volume of bilateral trade with several economic cooperation arrangements with different countries. The on-going negotiations between India and the ASEAN representatives and India and EU representatives during the last few years have given rise to considerable interest among researchers across the world. The proposed research aims at applying the Gravity model to understand the direction of trade, volume of trade, capital flows among the countries in EU and ASEAN and their significant impact on India's trade. The trade of India responds more than proportionally to size and less than proportionally to distance. The direction of India's trading volume with these trading blocs (ASEAN and EU) significantly explains the kind of free trade agreements formulated with both the blocs. India trades more with ASEAN countries rather than with countries in the EU. Bivariate regression analysis, multivariate regression analysis, pooled OLS regression model and fixed effect panel data regression model are used for the analysis