Export granularity and how it shapes comparative advantage and trade balance in Indian manufacturing

Abstract

India is emerging as a rapidly growing economy, with many multinational companies expanding globally. Export granularity calls for tailored trade and industrial policies, making it pertinent to study its effects on the comparative advantage and trade balance of India's manufacturing industries. Calculating the shares of granular firms, employing a nonparametric test, and applying static convergence regression analysis, this study finds that the export share of top manufacturing exporters ranges from 18 percent to 34 percent, and granularity in exports is higher than in gross output and factors of production. Export specialization strengthens when top exporters are excluded, while the trade balance worsens. Manufacturing exports are more concentrated in low technology (LT) and high-medium technology (HMT) product groups than in medium-low technology (MLT) product groups, and this concentration increases further when top exporters are excluded. The impact of top exporting firms is stronger in the MLT product group, indicating their key role in shaping the group's comparative advantage. After excluding the granular firms, the share of industries with comparative advantage increased over time, except for a few years. The findings suggest that trade policy should support ordinary firms in diversifying and strengthening the manufacturing sector's comparative advantage, particularly in the MLT product group.