Verification of gravity trade model for Indian textile exports

Abstract

Abstract This project had focused on understanding the different trade models like Comparative Advantage Theory, Huckster-Ohlin Theory and Gravity trade model. An attempt was made to verify the gravity trade model to Indian textile exports data. The objectives of the project included to understand the key determinants of bilateral trade flows between India and partner countries, to develop the model for predicting the export potential of textiles in terms of the key determinants. The determinants for the exports identified were PPP per capital income of India and partner country, the population of India and the partner country, exchange rate and shipping distance between two countries. The data from CMIE database, World Bank and IMF websites was used. The exports data to 100 countries of 11 commodity groups of textiles for year 1992 to 2001 was considered for the analysis. The regression results using SPSS software indicated that the textiles exports were more supply driven because the Indian related parameters influenced exports to a great extent. The gravity equation was verified because the coefficient of shipping distance was negative. Moreover the coefficient of exchange rate was negative signifying exports increase with the depreciation of rupee with respect to the partner country currency This project helped me to digest amounts of data quickly and derive inferences based on it. I learnt to extrapolate knowledge base.