Assessment of India's Bilateral Trade: Gravity Model Approach

This paper examines India's bilateral trade with selected forty major trade partners (in terms of total trade volume) during the years 1997–98 to 2012–13 using an augmented gravity model. In this paper a static panel model is applied. In order to address the issues like heterogeneous impact of the trading partners on the trade volume of India, panel corrected standard error (PCSE) model has been employed. The empirical findings suggest that liberalization and the two major financial crises (Asian crisis in 1997 and the recent global meltdown in 2008) that occurred during this phase played a crucial role in India's bilateral trade. Apart from that the results also support the pattern of bloc's trade.