Empirical Study of India’s Trade and Investment Relations with ASEAN Countries : Evidence from the Gravity Model Theory

Authors

  •   Raj Kumar Singh Professor, Department of Commerce, Himachal Pradesh University, Summer Hill, Shimla -171 005, Himachal Pradesh.
  •   Ajay Kumar PhD Scholar, Department of Commerce, Himachal Pradesh University, Summer Hill, Shimla - 171 005, Himachal Pradesh.
  •   Jyoti Kumari PhD Scholar, Department of Commerce, Himachal Pradesh University, Summer Hill, Shimla - 171 005, Himachal Pradesh.
  •   Yashvardhan Singh Student of MBA , Department of Management Studies, 2nd Sem, IIT (ISM) Dhanbad , Dhanbad - 826 004, Jharkhand.

DOI:

https://doi.org/10.17010/aijer/2022/v11i3/172680

Keywords:

Trade

, Investment, Gravity Model Theory, Fixed Effect Model, Random Effect Model, Product of GDP, Product Of Population

JELClassification Codes

, F10, F13, F14, F15, F17

Paper Submission Date

, May 23, 2022, Paper sent back for Revision, July 10, Paper Acceptance Date, July 30, 2022

Abstract

The study aimed to identify the policy determinants impacting India’s trade and investment relations with ASEAN countries using a gravity model in conjunction with panel data methodology. There were no missing values in the data set, so econometric techniques like the fixed effect model and the random effect model were applied, and based on the Hausman test estimates, the fixed effect model was selected for analysis purposes. The study’s findings reported that the product of GDP was directly proportionate to trade, while the product of population was inversely proportionate. Distance was negative to work more on trade liberalization policies, as the coefficient of India’s trade openness was positive but insignificant, reflecting the improvement in the transportation system. It was observed that India has needs, but they are insignificant compared to those of ASEAN countries. The findings regarding investment relations confirmed that the GDPof ASEAN countries, the urban population of ASEAN countries, the debt-to-GDP ratio of ASEAN countries, the saving-to-GDP ratio of ASEAN countries, and the Indian diaspora in ASEAN countries had a positive and significant impact on India’s investment relations with ASEAN countries. The important contribution of this study is that it extended the application of the gravity model to the area of analyzing the investment relations between India and ASEAN countries.

Downloads

Download data is not yet available.

Downloads

Published

2022-09-01

How to Cite

Kumar Singh, R., Kumar, A., Kumari, J., & Singh, Y. (2022). Empirical Study of India’s Trade and Investment Relations with ASEAN Countries : Evidence from the Gravity Model Theory. Arthshastra Indian Journal of Economics & Research, 11(3), 8–28. https://doi.org/10.17010/aijer/2022/v11i3/172680

Issue

Volume 11, Issue 3, July-September 2022

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

References

Alam I. & Ahmed S. (2018). A panel gravity model analysis of India's export to Gulf Cooperation Council (GCC) countries. Journal of International Economics, 9(1), 72–86.

Ambatkar S. (2001). India–ASEAN: Emerging scenario in economic interaction. India Quarterly, 57(1), 99–120. https://doi.org/10.1177/097492840105700106

Anderson J. E. (1979). A theoretical foundation for the gravity equation. The American Economic Review, 69(1), 106–116. https://www.jstor.org/stable/1802501

Anderson J. E. & van Wincoop E. (2003). Gravity with gravitas: A solution to the border puzzle. American Economic Review, 93(1), 170–192. https://doi.org/10.1257/000282803321455214

Ang J. B. (2008). Determinants of foreign direct investment in Malaysia. Journal of Policy Modeling, 30(1), 185–189. https://doi.org/10.1016/j.jpolmod.2007.06.014

Anwar S. & Nguyen L. P. (2011). Foreign direct investment and export spillovers: Evidence from Vietnam. International Business Review, 20(2), 177–193. https://doi.org/10.1016/j.ibusrev.2010.11.002

Bahmani-Oskooee M. & Hegerty S. W. (2007). Exchange rate volatility and trade flows: Areview article. Journal of Economic Studies, 34(3), 211–255. https://doi.org/10.1108/01443580710772777

Banga R. (2003). Impact of government policies and investment agreements on FDI inflows (Working Paper No. 116).Indian Council for Research on International Economic Relations. https://www.econstor.eu/handle/10419/189636

Batra A. (2006). India's global trade potential: The gravity model approach. Global Economic Review, 35(3), 327–361. https://doi.org/10.1080/12265080600888090

Bergstrand J. H. (1985). The gravity equation in international trade: Some microeconomic foundations and empirical evidence. The Review of Economics and Statistics, 67(3), 474–481. https://doi.org/10.2307/1925976

Bhattacharyya R. & Banerjee T. (2006). Does the gravity model explain India's direction of trade? A panel data approach (Working Paper 2006-09-01).IIMA Institutional Repository. http://hdl.handle.net/11718/180

Buckley P. J. Clegg L. J. Cross A. R. Liu X. Voss H. & Zheng P. (2007). The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38, 499–518. https://10.1057/palgrave.jibs.8400277

De P. (2010). Global economic and financial crisis: India's trade potential and prospects, and implications for Asian regional integration.Journal of Economic Integration,25(1),32–68. https://www.jstor.org/stable/23000965

Deardorff A. V. (1997). Determinants of bilateral trade: Does gravity work in a neoclassical world? In, J. A. Frankel (ed.), The regionalization of the world economy (pp. 7–32). University of Chicago Press.

Dinh T. T. B. Nguyen V. D. & Hoang M. C. (2014). Applying gravity model to analyze trade activities of Vietnam. Journal of International Economics and Management,69,3–18. https://jiem.ftu.edu.vn/index.php/jiem/article/view/117

Dorakh A. (2020). A gravity model analysis of FDI across EU member states. Journal of Economic Integration, 35(3), 426–456. https://www.jstor.org/stable/26927873

Egger P. (2002). An econometric view on the estimation of gravity models and the calculation of trade potentials. The World Economy, 25(2), 297–312. https://doi.org/10.1111/1467-9701.00432

Egger P. & Pfaffermayr M. (2003). The proper panel econometric specification of the gravity equation: Athree-way model with bilateral interaction effects. Empirical Economics, 28, 571–580. https://doi.org/10.1007/s001810200146

Eichengreen B. & Irwin D. A. (1995). Trade blocs, currency blocs and reorientaion of world trade in the 1930s. Journal of International Economics, 38(1–2), 1–24. https://doi.org/10.1016/0022-1996(95)92754-P

Feder G. (1983). On exports and economic growth. Journal of Development Economics, 12(1–2), 59–73. https://doi.org/10.1016/0304-3878(83)90031-7

Filippini C. & Molini V. (2003). The determinants of East Asian trade flows: A gravity equation approach. Journal of Asian Economics, 14(5), 695–711. https://doi.org/10.1016/j.asieco.2003.10.001

Gunawardana P. J. & Sharma K. (2010). The determinants of Australian manufacturing export performance. Journal of International Finance and Economics, 10(2), 77–86.

Helpman E. & Krugman P. (1987). Market structure and foreign trade: Increasing return, imperfect competition, and the international economy. MITPress.

Husain S. & Yasmin S. (2015). Does the gravity model explain Bangladesh's direction of trade? A panel data approach. IOSR Journal of Economics and Finance (IOSR-JEF), 6(3), 1–14.

Ismail N. W. Smith P. & Kugler M. (2009). The effect of ASEAN economic integration on foreign direct investment. Journal of Economic Integration, 24(3), 385–407. https://www.jstor.org/stable/23001252

Kabir M. & Salim R. (2010). Can gravity model explain BIMSTEC's trade? Journal of Economic Integration, 25(1), 143–165. https://www.jstor.org/stable/23000969

Kandilov, I. T. (2008). The effect of exchange rate volatility on agricultural trade. American Journal of Agricultural Economics, 90(4), 1028–1043. https://doi.org/10.1111/j.1467-8276.2008.01167.x

Karayil, S. B. (2007). Does migration matter in trade? A study of India's exports to the GCC countries. South Asia Economic Journal, 8(1), 1–20. https://doi.org/10.1177/139156140600800101

Kaur M. & Sharma R. (2013). Determinants of foreign direct investment in India: An empirical analysis. Decision, 40, 57–67. https://doi.org/10.1007/s40622-013-0010-4

Kaur S. & Nanda P. (2011). An analysis of actual and potential exports of Pakistan with SAARC countries: Apanel data analysis.Pakistan Journal of Applied Economics,21(1),69–91. https://ideas.repec.org/a/pje/journl/article11iii.html

Khayat S. H. (2019). A gravity model analysis for trade between the GCC and developed countries. Cogent Economics & Finance, 7(1), Article 1703440. https://doi.org/10.1080/23322039.2019.1703440

Kimura F. & Lee H.-H. (2006). The gravity equation in international trade in services. Review of World Economics, 142, 92–121. https://doi.org/10.1007/s10290-006-0058-8

Kumar S. & Ahmed S. (2015). Gravity model by panel data approach: An empirical application with implications for South Asian countries.Foreign Trade Review,50(4),233–249. https://doi.org/10.1177/0015732515598587

Lai A. A. & Bujang I. (2016). The Heckscher-Ohlin versus Linder's Theory: Evidence from Malaysian exports. Journal of Business and Retail Management Research,10(2),85–93. https://jbrmr.com/cdn/article_file/i-23_c-218.pdf

Manjeed M. T. & Ahmad E. (2007). FDI and exports in developing countries: Theory and evidence. The Pakistan Development Review, 46(4), 735–750. https://www.jstor.org/stable/41261193

Martinez-Zarzoso I. & Nowak-Lehmann F. (2003). Augmented gravity model: An empirical application to Mercosur-European Union Trade Flows. Journal of Applied Economics, 6(2), 291–316. https://doi.org/10.1080/15140326.2003.12040596

Morris S. & Jain P. (2016). Determinants of OFDI: An empirical analysis of OECD source countries using gravity model. Indian Economic Review, 50(2), 243–271. https://www.jstor.org/stable/44242765

Ngaibiakching & Pande A. (2020). India's Act East Policy and ASEAN: Building a regional order through partnership in the Indo-Pacific .International Studies,57(1),67–78. https://doi.org/10.1177/0020881719885526

Noland M.(2005).Affinity and international trade (Working Paper No.05–3). https://ideas.repec.org/p/iie/wpaper/wp05-3.html

Oh J. & Prasai L. P. (2012). Does gravity matter? Evidence from Nepal's trade pattern. International Area Studies Review, 15(2), 161–175. https://doi.org/10.1177/2233865912447086

Pan Y. (2003). The inflow of foreign direct investment to China: The impact of country-specific factors. Journal of Business Research, 56(10), 829–833. https://doi.org/10.1016/S0148-2963(02)00470-8

Pöyhönen P. (1963). A tentative model for the volume of trade between countries. Weltwirtschaftliches Archiv, 90, 93–100. https://www.jstor.org/stable/40436776

Pradhan S. R. (2006). India's export potential to the Gulf Cooperation Council (GCC) countries: A gravity model analysis. Asia-Pacific Research and Training Network on Trade, Post Workshop Reports. https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=b70b3196a143f0b565f4c1abfba b0f706e082ae2

Rahman M. M. (2003). Apanel data analysis of Bangladesh's trade: The gravity model approach. In, Proceedings of the 5th Annual Conference of the European Trade Study Group (ETSG2003). https://eprints.usq.edu.au/6063/

Rahman M. M. & Dutta D. (2012). The gravity model analysis of Bangladesh's trade: A panel data approach. Journal of Asia-Pacific Business, 13(3), 263–286. https://doi.org/10.1080/10599231.2012.687616

Sharma K. & Bandara Y. (2010). Trends, patterns and determinants of Australian foreign direct investment. Journal of Economic Issues, 44(3), 661–676. https://doi.org/10.2753/JEI0021-3624440305

Singh R. K. Kumar A. & Kumari J. (2022). An empirical application of Gravity Model Theory to Indo-BIMSTEC Business Relations .Journal of Polity & Society,14(1),119–137. https://journalspoliticalscience.com/index.php/i/article/view/6

Singh R. K. Kumar A. Kumari J. & Singh Y. (2022). Navigating determinants of India's business relations with GCC Countries: Evidence from the gravity model theory. Prabandhan: Indian Journal of Management, 15(6), 8–27. http://doi.org/10.17010/pijom/2022/v15i6/170021

Singh R. K. Singh B. & Chauhan D. (2018). India's Trade Relations with SAARC Countries in Pre and Post SAFTA Periods: An evaluation of trade flows by using Multiple Regression Model. Arthshastra Indian Journal of Economics & Research,7(6),43–59. https://doi.org/10.17010/aijer/2018/v7i6/141433

Tinbergen J. (1962). Shaping the world economy: Suggestions for an international economic policy. The Twentieth Century Fund.

Tripathi S. & Leitão N. C. (2013). India's trade and gravity model: A static and dynamic panel data (Munich Personal RePEc Archive (MPRA), 45502). https://mpra.ub.uni-muenchen.de/45502/

Yean T. S. & Yi A. K. (2014). Reassessing the impact of the ASEAN - India free trade agreement. Jurnal Ekonomi Malaysia, 48(2), 99–110. https://www.ukm.my/jem/article/reassessing-the-impact-of-the-aseanindia-free-trade-agreement