Software and services export, IT investment and GDP nexus in India : evidence from VECM framework

Purpose - The purpose of this paper is to investigate both long-run and short-run dynamics among the software and services export, investment in information technology (IT) and GDP in India and to investigate the direction of the relationship among the given three macro-economic variables. Design/methodology/approach - The time series data have been taken to investigate the long-run relationship exists among the variables. Annual data were collected from the NASSCOM Annual Reports, Planning Commission of India and Reserve Bank of India during the period 1980–2016. Cointegration and vector error correction model have been used for analyzing the causal relationship among investment in IT, software exports and GDP in India. Findings - Cointegration results confirm that software and services export, investment in IT and GDP are cointegrated, implying that there exists the long-run equilibrium relationship among the given three macro-economic variables. Similarly, vector error correction mechanism Granger causality results hold that there is uni-directional long-run causality running from software and services export and investment in IT to GDP, implying that software and services export is an important determinant of economic growth in India. Research limitations/implications - The limitations of the paper are generalization of the results and proxy variable for IT investments. Practical implications - The paper has implications for the expansion of market concentration, diversification of software and service exports, and investments in R&D for increasing competitiveness of the industry in the global market. Originality/value - This paper focuses on originality in the analysis of the relationship among the given variables software exports, investment in the IT sector and GDP in India. All the work has been done in original by the authors and the work used have been acknowledged properly.