Does globalization affect export performance in India? An empirical insight

• Published date: 01 May 2021
• Author: Aruna Kumar Dash
• Date: 01 May 2021
• DOI: http://doi.org/10.1002/pa.2209

ACADEMIC PAPER

Does globalization affect export performance in India?

An empirical insight

Aruna Kumar Dash

Department of Economics, IBS Hyderabad,

Hyderabad, India

Correspondence

Aruna Kumar Dash, Associate Professor,

Department of Economics, IBS Hyderabad,

Hyderabad, India.

Email: akdash@ibsindia.org

The present paper examines the effect of economic globalization on India's aggregate

export performance during the period from 1995:M1 to 2016:M12. We use various

macroeconomic variables such as export, relative price, nominal effective exchange

rate (NEER), GDP per capita, and economic globalization. We employ Auto Regres-

sive Distributed Lag (ARDL) model to find out the long-run equilibrium relationship

among the variables considered. The empirical results indicate that there exists a

long-run equilibrium relationship between export, relative price, NEER, GDP per

capita and economic globalization. Further, in the long run, we find that India's export

performance is influenced by economic globalization, GDP per capita and relative

price. However, in the short run, export performance is influenced by economic glob-

alization, relative price, NEER and GDP per capita. In the short run, 1% increase in

economic globalization will lead to increase in the volume of export by 0.77%;

whereas, in the long run, it is 3.40%. Hence, sustainability of export in the long run is

a matter of concern for policy makers.

1|INTRODUCTION

Before World War II, there was rapid integration of the economies in

terms of flow of goods and services and movement of capital. The

inter-war period witnessed the erection of various barriers to restrict

free movement of goods and services. After World War II, most of the

countries across the globe were fragmented and divided into a num-

ber of poorly integrated economies. In order to protect their economy,

quantitative restrictions and other barriers to commerce such as high

tariffs, strict quotas, controls on capitals and currency movements,

etc. were enforced. However, during the last two decades, this frag-

mentation of the globe into several different economies has tended to

be reversed; and now most of the countries in the world have become

economically and financially integrated. As a result, tariffs were sub-

stantially lowered in a series of negotiated stages. International trade

was revived, and, indeed, the volume of world trade has increased

more rapidly. In the financial sphere, exchange controls were largely

removed, which permitted funds to flow rapidly from one country to

another; this encouraged the integration of the financial markets.

In the current climate of globalization, the exchange rate has

become an extremely important macro-economic variable, with

potential influence on the whole economy. It is one variable through

which global influences from other countries get transmitted across

the borders, with a potential to affect two major macro-economic var-

iables, namely output and inflation. After the introduction of eco-

nomic reforms in the 1990s, India chose greater integration with the

world economy as part of its development strategy. Even though inte-

gration deepened, the rate of growth of per capita income and invest-

ment level did not change much. However, in the first decade of the

21st century, the integration was very strong and also saw a sharp

increase in volume of export, per capita income, capital inflows, sav-

ings and investment, etc. In the last three decades, world trade rela-

tive to GDP has seen substantial increase. The rapid development of

the capital market has been one of the important features of the cur-

rent process of globalization.

Globalization means integration of economies and societies

through cross-country flow of information, ideas, technologies, goods,

services, capital, finance and people (Rangarajan, 2003). However, the

term “globalization”is used here in the limited sense of economic inte-

gration which can happen through the three channels of (a) trade in

goods and services, (b) movement of capital and (c) flow of finance.

Dreher (2006) developed an index of globalization covering its three

Received: 2 May 2020 Revised: 21 May 2020 Accepted: 28 May 2020

DOI: 10.1002/pa.2209

J Public Affairs. 2021;21:e2209. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of9

https://doi.org/10.1002/pa.2209