The export-income relationship: the case of India

Abstract

Export promotion has been central to India’s export-import policies since the late 1990s and exports are seen as a potential engine of growth. This paper examines India’s export-income relationship for 1950-99 using vector autoregressive models. Results show no cointegrating long-run relationship but Granger-causality tests and impulse responses indicate short-run feedback: a 1% increase in exports (income) leads to a 0.06% (0.35%) increase in income (exports) in the following year and these effects are long-lived. Export promotion policies appear justified.