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Corresponding Author:
Narayanasamy Kubendran, NMIMS University, Bangalore, Karnataka, India

Trade Relation between India and other BRICS Countries: A Multidimensional Approach using Gravity Model and Granger Causality

Volume 73 - Issue 2, May 2020
(pp. 237-256)
JEL classification: C51, F10, F15, F17, F19, F41
Keywords: BRICS, Gravity Model, Granger Causality Model, Foreign Trade, Economic Integration

Abstract

The aim of the study is to explore the trade relation between India and other BRICS nations in the short-run as well as in the long-run. For empirical analysis, this study employed the Granger Causality Test for short-run impact and Gravity Model using Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS) for long-run impact. Granger Causality test results strongly support India’s trade with other BRICS nations. Long-run results from the Gravity model using DOLS and FMOLS found highly significant for the selected variables (GDP, PCGDP, PCGDPD, Exchange Rate, Trade-GDP ratio and Distance) other than inflation and trade agreement. Except for inflation, per capita GDP differential and distance, all the other variables (GDP, PCGDP, Exchange Rate, Trade-GDP ratio and Trade Agreement) have a positive coefficient to the volume of trade of BRICS nations. This implies that the policymakers in India should strengthen their trade relations with other BRICS nations by promoting the made in India, SEZs, EOUs and expanding second-generation reforms to reap the potential benefits from the global economy. 


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