Regionalism or Multilateralism: Evidence from India

Abstract

With an impasse at Doha round of negotiations, many countries started to change their course of economic liberalization from generic policies of multilateralism to regional trade agreements (RTAs). In this scenario, India plausibly lacks the presence and will of concluding such agreements with some of its major trading partners while being sceptical about the existing ones. Using structural gravity, this study has quantified the impact of country-specific globalization levels and RTAs on international trade among India and its 32 major trading partners. Unlike a plethora of studies employing the gravity model on Indian trade policy issues, we have made use of many recent advancements in gravity modelling. Our methodology robust to the use of intra-national trade data, two alternative estimators, and multiple scenarios naturally addresses the endogeneity issues that are prominent with trade policy variables like RTAs. The empirical results reveal that RTAs have a comparatively strong impact in promoting trade among sample countries. However, country-specific globalization levels measured by the KOF globalization index have a very negligible impact on promoting trade among sample countries. Furthermore, we have obtained very slight asymmetries across the impact of country-specific globalization levels on exports versus imports of mid-income countries with high-income countries.

JEL Codes: F1, F14, F15, F60, F68