India in the Global and Regional Trade: Determinants of Aggregate and Bilateral Trade Flows and Firms' Decision to Export

This paper contributes to two strands of literature on empirical models of trade flowsand trade policy. The first and the older strand is that of gravity models of bilateraltrade flows going back to Hans Linneman (1966) and Tinbergen (1962) and its recentapplications, particularly by Adams et al (2003) and De Rosa (2007) in analyzing theimpact of Preferential Trade Agreements (PTAs). Our focus is on applying the gravitymodel to analyze India's trade flows (exports and imports) with its trading partnersaround the world and to examine the impact of various PTAs in which India or itstrading partner or both are members. Clearly this is of interest, since, from 1991 Indiais aggressively negotiating and concluding PTAs of which South Asian preferentialtrade (and later free trade) agreement is the most prominent. We find that India is notwell served by its pursuit of PTAs and should instead push for multilateral tradeliberalisation by contributing to conclusion of the Doha round of negotiations with anagreement beneficial to all WTO members.The second and the more recent strand is the analysis of trade flows using data onexports of individual firms. It is well known that in all countries of the worldrelatively few firms participate in world trade, thus suggesting that characteristics ofa firm (such as its size and productivity) are relevant besides country level barriers ontrade matter for participation in world trade. This strand is rapidly growing. Ours isone of the very few attempts at modeling and estimating the decision of Indian firmson their participation using firm level data. The paper reports on our preliminaryresults. We have also collected primary data from a sample survey of firms to explorethis issue deeper. While these data are yet to be fully analyzed, nevertheless somepreliminary descriptive tables summarizing them are included in an Appendix.