Exploring Import-led Growth in India: Evidence from the Post-reform Period

Abstract

While the export-led growth (ELG) hypothesis attracted much attention historically, the import-led growth (ILG) dimension received little attention despite important linkages. The present article studies whether the ELG, ILG, growth-led export (GLE) and growth-led import (GLI) propositions hold in India for the post-reform period. Accordingly, the short-run and the long-run impacts of exports, imports, exchange rate and trade openness on income are assessed. The analysis finds prominent evidence of ILG hypothesis, both in the short run and in the long run suggesting that import is a significant bearing of economic growth, while the ELG hypothesis holds only in the short run. Besides, the exchange rate and trade openness have negative impacts on income. The study also finds indications of significant, stable export- and import-demand functions, where income and trade openness have caused exports and imports to rise. As income causes a rise in both export and import, the GLE and GLI hypotheses are also testified. The exchange rate depreciation and lagged imports also cause the export to a raise. As trade particularly import is an essential factor in income growth, the country should encourage more outer-orientation of the economy. An import liberalization policy could be useful for economic growth. JEL Classification: F43, F13, F14, O24, C32