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Export-Led Growth in India: What Do the Vars Reveal? – isec

Export-Led Growth in India: What Do the Vars Reveal?

Abstract

This paper attempts to test the long run relationships among exports, imports, gross domestic capital formation, trade policy and GDP in India using annual data from 1965- 66 to 1997- 98. The empirical framework of Vector Autoregressions (VARs) augmented with an error correction mechanism has been employed. The issue of the presence of a structural break while testing for unit roots in the data, has also been tackled using Perron’s (1987, 1997) tests. The forecast error variance decomposition (FEVD) technique is employed to account for error variance in each of the variables in the VAR system, to innovations in its own as well as other variables in the system. The FEVD test reveals that exports and imports are largely explained by their own innovations. The findings of the study do not lend support to the export-led growth hypothesis in India.

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