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IIMS Journal of Management Science
Year : 2020, Volume : 11, Issue : 2
First page : ( 67) Last page : ( 81)
Print ISSN : 0976-030X. Online ISSN : 0976-173X.
Article DOI : 10.5958/0976-173X.2020.00006.8

Examining the drivers of india’s trade deficit: An ardl bounds and causality approach

Manu K.S.1, Kalra Rameesha2, Nayak Surekha3

1Assistant Professor of School of Business and Management, CHRIST (Deemed to be University), Bengaluru, Karnataka, India. He can be reached at manu.ks@christuniversity.in

2Assistant Professor, School of Business and Management, CHRIST (Deemed to be University), Bengaluru, Karnataka, India. She can be reached at rameesha.kalra@christuniversity.in

3Assistant Professor in School of Business and Management, CHRIST (Deemed to be University), Bengaluru, Karnataka, India. She can be reached at surekha.nayak@christuniversity.in

Online published on 11 September, 2020.

Abstract

India’s trade deficit has widened due to its dependence on imports and uncompetitive exports. An understanding of drivers influencing trade deficit deserves significant attention. This study examined the impact and causality of crude oil, USD/INR exchange rate and gold on trade deficit in India from the year 2004 to 2019. The study employed Auto Regressive Distributed Lag (ARDL) bound test approach and the Granger causality to empirically verify the results. The study found that USD/INR and crude oil prices have a negative and long run impact on trade deficit. The study also observed no impact of gold on trade deficit. Further, the Granger causality test revealed a unidirectional causality running from crude oil and USD/INR to trade deficit. The implication of the result is that Government of India and policymakers should aim at promoting a phenomenal growth of exports and reduce imports of crude oil and gold so as to maintain a sustainable trade balance.

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Keywords

Trade deficit, Crude oil, Gold prices, Exchange rates, Autoregressive distributed lag, Granger causality.

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