Liberalization reform and export performance of India

Abstract

This paper examines the impact of liberalization reform on export performance of India. The empirical analysis involves estimating an export demand-supply model for manufacturing and merchandised exports, applying ARDL approach to cointegration using annual data for the period 1975-2008. The main advantage of this approach is that, apart from providing robust estimations in small sample sizes, it needs no prior knowledge of the integration properties of the variables. The results suggest that manufacturing and merchandise export demand are mainly determined by world demand, while manufacturing export supply is determined by domestic manufacturing output, FDI and overall liberalization- initiated in the early 1990s. Contrary to the received view, this study failed to detect a significant negative impact of trade protection on export performance; however, overall liberalizations reforms seem to have positive impact in India’s manufacturing export performance but this is not true in the context of merchandised export performance.