Long Run Equilibrium between Indias's Exports and Imports During 1949-50 - 2004-05

An attempt has been made in the present paper to see is there long run equilibrium relationship between India's exports and imports during the 1949-50 to 2004-05. The empirical results based on unit root tests, co integration and error correction modeling exemplifies that the exports and imports are co integrated showing existence of long run equilibrium between India's exports and imports .The elasticity of India's exports with respect to imports is slightly more than unity revealing that the ratio of exports to imports goes on increasing slightly with the increase in imports. The elasiticity of India's imports with respect to exports is somewhat less than unity implying that the ratio of imports to exports goes on declining with the increase in imports. The economic reforms that have been initiated since 1992 could not facilitate in correcting more percentage of disequilibrium during post economic reform period as the regression coefficient of interaction variable is negatively insignificant. The results based on error correction model of first differenced Y on first differenced X and errors in lagged year show that the system corrects its preceding period's disequilibrium between long run and short run periods by twenty seven percent a year