Estimating the Impact of Free Trade Agreements on India’s Export Potential

Abstract

The study examines the role of trade agreements (TA) in determining merchandise export efficiency in India using the stochastic frontier gravity model. We estimate the impact of select trade agreements (bilateral, SAFTA, APTA, ASEAN, and MERCOSUR), regulatory quality, and FDI inflow on India’s export efficiency in the period 2002–2018. Results suggest that TAs have enhanced India’s merchandise export efficiency to its trading partners except for the MERCOSUR bloc. However, substantial potential is still untapped. The study finds that the regulatory quality (RQ) of importing nations does not enhance India’s export efficiency. Moreover, the RQ of India is promising but not significantly promoting exports. The study suggests that India should further liberalize its existing trade agreements, harmonize and improve regulatory standards facilitating cross-border trade and export-oriented FDI, and undertake trade access to top-consuming markets to achieve its full export potential.