Exchange rate and its impact on India's trade with its major trading partners: A pooled mean group approach

Abstract

The study examines short-run and long-run impact of exchange rate on India's export and import with its select trading partners for a period from 1993Q1 to 2019Q3. The study employs panel cointegration and pooled mean group (PMG) estimation method. The results establish the presence of long-run relationship among exports, imports, exchange rate, GDP of India and its trading partners. Further, in the long-run and short run, the exchange rate has impact on exports but not on India's imports. The result reveals that there is a significant impact of exchange rate for Indias export to the countries like Belgium, China, Japan, Germany, Switzerland, UAE, USA and UK. However, the exchange rate depreciation has significant effects only on India's imports from China, UAE and USA. Also, the results of Marshal-Lerner condition indicate depreciation of Indian rupee increases India's exports.