An Analysis of Causality between Growth and Instability in Agricultural Exports of India

Abstract

An attempt in the present study has been made to study growth and extent of instability in exports of major agricultural commodities during pre and post liberalization period, and to examine the relationship between agricultural export growth and export instability. The study uses the Cuddy-Della Valle Index to examine instability in exports and cointegration and error correction models to investigate the causal relationship between agricultural export growth and export instability. The total agricultural exports increased at the annual compound growth rate of 6.71 per cent during post-reform period up from 1.76 per cent during pre-reform period. The compound growth rate of all the agricultural and allied items except tea & mate, oil cakes, cashew kernels and spices were higher during post-reform period as compared to pre-reform period. As regards to instability, at the aggregate level, the results indicate relatively high volatility in agricultural exports after policy initiation. The cause and effect relationship between export growth and instability indicates that there is no causality either way in the short run, i.e. causality runs neither from instability to export growth nor from growth to instability. While there is strong evidence for unidirectional long-run Granger causality running from export growth to export instability.