On the Empirics of Trade and Growth Relationship in India

The study analyses the long run equilibrium and short run dynamic relationship among real exports, real imports and real income in India for the period 1951-52 to 1995-96. The long run relationship is examined using both the Engle-Granger (1987) two-step and the Johansen (1991) maximum-likelihood systems estimators. The short run relationship is analysed and the hypothesis of Granger non-causality is tested by estimating a dynamic VAR model. A more recent estimator based on level VAR developed by Toda and Yamamoto (1995) is also used to test the hypothesis of Granger non-causality. The study does not find any evidence for the presence of cointegrating relationship among the variables. The study supports the presence of a short run dynamic relationship with unidirectional Granger causality flowing from imports to exports and from exports to income.