Determinants of Exports of Information Technology in India

Abstract

The information technology (IT) sector has contributed significantly to the economic growth in India and is one of the fastest-growing export-oriented sectors in India. The objective of this article is to explore the determinants of exports of IT companies of India from 2000 to 2012 using company-level data. Applying ordinary panel data regression, the article finds that world demand and real effective exchange rate have expected signs on company exports. Surprisingly, foreign capital, which played a crucial role in IT sector development in India, has a negative coefficient, highlighting substitution relation between export and domestic demands. The dynamic panel data regression exhibits persistence of exports which acts as a moderating factor on demand fluctuations and its high impact. Further, the dynamic panel estimations clearly show the predominant influence of past exports on gross domestic product (GDP) growth in India, which makes world demand, standardized as relative to India’s GDP, inconsequential for its future exports.