Inflation and Trade Openness : Empirical Investigation for India

The question whether increased openness on trade account creates a favorable atmosphere for inflation reduction has been examined in the present study. The empirical results employing quarterly data over the 21-year period from 1984-85 to 2004-05, indicate that while trade openness has significantly contributed to the disinflation process, the decline in the world inflation rate has also been a significant environmental factor for this decline. The study also finds that the relationship has grown stronger, in terms of structural break, since 1989, when the trade liberalization started showing macroeconomic effects