RELATIONSHIP BETWEEN TRADE OPENNESS AND ECONOMIC GROWTH OF INDIA: A TIME SERIES ANALYSIS

The empirical relationship between trade openness and economic growth of India has been a debatable issue. The existing literature fails to provide an unambiguous answer. The paper examines this empirical relationship for the time period 1970-2010 using Vector Autoregression method and demonstrates that the relationship has evolved over time following the regime change in the early 1980s when the Indian economy started to move from a state-led growth model to a pro-market regime. Therefore, any assumption of a static trade-growth nexus may lead to inaccurate findings. Our econometric results indicate that growth in trade volumes accelerates economic growth of India since 1980-81 onwards. We do not find evidence of any significant association between trade barriers and growth.