Economic Determinants of Changing Integration: A Study on India and Its Major Trading Partners

Abstract

This article has investigated, first, the changing degree of integration the using Geweke Feedback method between the stock indices of India and its 13 major trading partners, and second, the relationship between trade and this changing integration. Geweke feedback helped to measure the contemporaneous feedback between stock markets of India and the sampled countries, and it also measured the lead of Indian stock market on other markets and vice versa. Geweke feedbacks have been measured between the stock market of India and those of the sampled countries for the whole sample period and every year during 1999–2020. It helps to reach the conclusion that the contemporaneous effect is very high between the Indian stock market and other stock markets. The Indian stock market leads stock markets of Asian countries, whereas European countries and USA lead the Indian stock market. The effect of trade and other economic variables, on these Geweke feedbacks have been assessed through pooled time series regression. Import of India and inflation differential are statistically significant to assess contemporaneous feedback. Export from sampled countries to India, inflation, and interest rate differential and trend are statistically significant to explain lead feedbacks.