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An index of openness and its relationship with growth in India

Author

Listed:
  • Jim Love
  • Ramesh Chandra

    (University of Strathclyde, Glasgow, UK)

Abstract

Time-series work on trade policy and growth is handicapped by the difficulty of measuring 'trade policy'. Established definitions of trade orientation such as 'bias' or the 'effective rate of protection' are difficult to operationalise in a time-series context because of enormous data requirements. This paper tries to fill an important gap in the literature. For the first time it constructs a time-series index of openness for India based on the real exchange rate distortion, and then, using Johansen's maximum likelihood approach, examines its relationship with growth in India. It is found that while greater openness exercises a positive influence on growth, the effect of investment, contrary to conventional wisdom, is insignificant. This is in line with the Young-Currie-Kaldor view of endogenous growth which sees capital accumulation more as an effect than a cause of growth. This view is based on Adam Smith's famous dictum that the division of labour is limited by the size of the market. In this demand side approach, increasing returns result from greater specialisation, which in turn depends on the size of the market. The robustness of the results is reconfirmed by using the ARDL approach.

Suggested Citation

  • Jim Love & Ramesh Chandra, 2004. "An index of openness and its relationship with growth in India," Journal of Developing Areas, Tennessee State University, College of Business, vol. 38(1), pages 37-54, September.
    • Handle: RePEc:jda:journl:vol.38:year:2004:issue1:pp:37-54
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    File URL: http://muse.jhu.edu/journals/journal_of_developing_areas/v038/38.1love.html
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    Citations

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    Cited by:

    1. Sushil Kumar Haldar, 2009. "Economic Growth in India Revisited," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 10(1), pages 105-126, January.
    2. Valadkhani, Abbas, 2005. "Macroeconometric Modelling: Approaches and Experiences in Developing Countries," Economics Working Papers wp05-10, School of Economics, University of Wollongong, NSW, Australia.
    3. Shankaran Nambiar & Arunnan Balasubramaniam, 2016. "Does ASEAN–India Trade Stimulate Income? A Cointegration Analysis Using the ARDL Approach," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 17(2), pages 295-314, September.

    More about this item

    Keywords

    trade policy; index of openness; development theory and policy; India; time-series econometrics;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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