Analysis of India’s Trade Potential with RCEP Members: A Study Using Gravity Model

Abstract

The Regional Comprehensive Economic Partnership (RCEP) agreement was concluded in the year 2020 between ASEAN and its five free trade agreement (FTA) partners excluding India, which was a part of the negotiation since its inception. RCEP remains important for India considering its volume of trade with member countries and FTAs it has with various members of the group. During signing of RCEP, India had FTAs with 12 members except China, Australia and New Zealand. Later, India signed an interim FTA with Australia in April 2022, followed by an Economic Cooperation and Trade Agreement in December 2022. The trade potential India has with these countries will be of interest to the policymakers for influencing its future direction of trade. India’s trade potential with Australia, China and New Zealand with whom it did not have an FTA till the signing of RCEP is important from the perspective of entering into bilateral trade agreements. In this article, the gravity model is used to measure India’s potential trade with RCEP as a block and individually with China, Australia and New Zealand. Here, a high-dimensional fixed effect Poisson pseudo-maximum likelihood model is used for measuring potential trade. A comparison of potential trade with the actual shows that India has more potential for expansion of exports than imports with RCEP as a block and in particular with China, Australia and New Zealand.