This article applies the Bickerdike–Robinson–Metzler (BRM) model to examine the effect of the exchange rate of Indian rupee vs the US dollar on India’s trade balance. Using the elasticity of absorption approach, we consider the link between macroeconomic variables and trade balance. We also explore the existence of J-curve relationship. The study period, 1965 to 2008, is hallmarked by major shifts in global politico-economic landscape which can potentially cause structural break in the series. Our test of stationarity properties can explicitly capture this feature in the data. We use the autoregressive distributed lag (ARDL) bounds testing approach for a long-run relation, and the impulse response functions (IRFs) and the variance decomposition method (VDM) for the short-run dynamics. We find (a) cointegration, (b) positive impact of depreciation of rupee against the US dollar on India’s trade balance and (c) a J-curve relation. The findings have implications for policy for India and its neighbours.
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