INDIA AND LATIN AMERICA: LOOKING AHEAD

OBJECTIVES:

LATIN AMERICA IN INDIA’S FOREIGN POLICY

OBJECTIVES:

TRADE OPENNESS AND ECONOMIC GROWTH NEXUS: A CASE STUDY OF

BRICS
OBJECTIVES:

1. To analyse a causal relationship between trade openness and economic growth for the
member countries of BRICS
2. To study the impact of trade openness on their growth in GDP per capita.
3. It captures structural composition of GDP and openness of trade in four aspects, that is,
merchandise exports, merchandise imports, services export and services import. In India, the
study found growth-led trade in services hypothesis. The article supports the growth-led
export and growth-led import hypothesis for China and export- and import-led growth for
South Africa.

METHODOLOGY:

The long-run, short-run and causal relationships between trade openness and economic growth
have been studied for the BRICS group consisting of Brazil, Russia, India, China and South Africa. To
capture the economic growth of a country, GDP per capita at constant 2005 US$ prices [Log of GDP
per capita (LPCGDP)] are used for all countries.

Investment also channelizes the economic growth of a country and, thus, the gross capital formation
as a percentage of GDP [Log of Gross Capital Formation as percentage of GDP (LGCF)] at constant
2005 US$ prices has been included in the model

Openness measure constitutes various aspects of trade such as export openness and import
openness. Rather than considering total trade as a measure of openness, the study has used
disaggregated trade as merchandise exports, merchandise imports, services export and services
import. The study covers the annual time series from 1981 to 2013 for Brazil, India, China and South
Africa, and from 1989 to 2013 for Russia.

Natural logs of all these variables are used for the econometric analysis.

The empirical literature has used a variety of econometric techniques to analyse the trade openness
and economic growth pertaining to panel data analysis, crosssection analysis and time series
analysis. Time series analysis allows to analyse significant fluctuations in trade openness during the
period and to distinguish specific characteristics for each country. Therefore, we apply the time
series technique to analyse causal relationship between trade openness and economic growth for
each member country of BRICS.

SOURCES

The data has been taken from the World Development Indicators of the World Bank (World Bank,
2015) except for services export and services import, the data of which is extracted from the United
Nations Conference on Trade and Development for all countries (UNCTAD, 2015)

CONCLUSION

The error correction terms of Brazil and China are positive and insignificant. However, in the case of
South Africa, the error correction term is negative, however, insignificant. For Russia and India, a
positive and significant error correction term has been encountered. In the case of Brazil and India,
none of the variables are found to be significantly affecting GDP per capita. For remaining countries
of BRICS, the lags of GDP per capita are depicted to affect the current level of it. Gross capital
formation tends to increase GDP per capita in the short run, whereas merchandise exports have
significant negative impact on GDP per capita growth in South Africa. In addition, import of services
has a significant positive effect on GDP per capita in the short run in the country

The relationship between trade openness at disaggregated level along with investment and
economic growth of BRICS countries has been assessed using VAR framework.

Causality analysis of BRICS nations revealed that no causal relation among variables was established
in the case of Brazil and Russia.

LATIN AMERICA: THE EAST WING OF THE NEW SILK ROAD

OBJECTIVES

We propose a much-needed adjustment to the BRI, using a new tool for evaluating the participation
of member countries. Comparisons take into account the five collaboration variables established as
the building blocks of the BRI: policy coordination, facilities connectivity, unimpeded trade, financial
integration, and people-to-people bond. To make a more detailed analysis, we include two
measurement criteria per variable, which can be used either to test for suitability of new or existing
members of the New Silk Road. A second issue under study is the feasibility analysis of the extension
of the initiative into Latin America. We use the proposed mechanism comparing 10 active members
of the BRI versus 10 countries in Latin America. Results show the adequacy of the region to join the
initiative. Indeed, we demonstrate that Latin America is suitable to be the East Wind of the BRI

METHODOLOGY

We compared a group of 10 members of the BRI with 10 Latin American nations. Due to the absence
of measurement instruments addressing overall performance of the New Silk Road countries, we
intended at first to base the selection of the BRI countries upon the Knight Frank Belt and Road
Index (BARI). This is a complete index that includes six categories: economic potential, demographic
advantage, infrastructure development, institutional effectiveness, market accessibility, and
resilience to natural disasters. Unfortunately, the index is contextualized for investment decisions
and fails to take into account all the five pillars of the BRI, especially policy coordination and people-
to-people bond.

DATA

Source: Data from Nation Master

Source: China FTA Network and China Vitae

Source: World Bank, International LPI (2018)

Source: Trading Economics and Countryeconomy.com

Source: Henley and Partners (2019) and Confucius Institute (2019)

CONCLUSIONS

Results show the adequacy of the region to join the initiative. Indeed, we demonstrate that Latin
America is suitable to be the East Wind of the BRI.

INDIA–JAPAN CEPA: WHAT RCA INDEX REVEALS FOR TRADE IN

SERVICES?
OBJECTIVES

1. Qualitative analysis of the General Agreement on Trade in Services and the India–Japan
Comprehensive Economic Partnership Agreement has been undertaken to evaluate the
commitments and obligations at the policy level.
2. Quantitative analysis explores key areas of potential in services trade between India and
Japan, applying Revealed Comparative Advantage index.
3. The study observes huge untapped potentials and strong trade complementarities between
India and Japan, which offers lessons to the other economies of the world.

RESEARCH METHODOLOGY & DATA SOURCES

This study is based on qualitative as well as quantitative analysis. Qualitative analysis includes
assessment of the GATS and India–Japan Comprehensive Economic Partnership Agreement (CEPA).
The broad objective is to explore the dynamics of services trade liberalization in the multilateral as
well as the bilateral framework. Quantitative analysis is based on the computation of the Revealed
Comparative Advantage (RCA) index for services for both Japan and India. The data have been taken
from Trade Map: Trade Statistics for International Business Development, International Trade Centre
(ITC) for the period 2004–2012 in US$ thousand.

RESULTS
Both India and Japan can complement each other based on their comparative advantage in different
services. This may ensure huge complementarities in the respective trade in services. There is a huge
potential for the expansion of bilateral services trade between India and Japan. Both the countries
can exploit mutual specialization in different services. This will further help in achieving the
competitiveness in the services sector for both these economies.

INSTITUTIONAL DEVELOPMENT LEADING TRADE DEVELOPMENTS: A

CASE STUDY OF INDIA–ASEAN BILATERAL TRADE
OBJECTIVES

1. The present article deals with how institutional developments prevailed in India and the
Association of South-East Asian Nations (ASEAN) could lead to development in bilateral
trade between India and the ASEAN.
2. This article prioritizes developments of institutional variables prevailing in India along with
the Association of South-East Asian Nations (ASEAN)5 and reflection of variables on bilateral
trade. India and the ASEAN are reportedly having dissimilarities in parameters such as per
capita income (PCI; based on country report and World Bank) and institutional variables
(according to Free the World and Index of Economic Freedom, The Heritage Foundation).
3. The article deals with the strength of association and its trajectory between the institutions
and the bilateral trade in India–ASEAN.

RESEARCH METHODOLOGY & DATA SOURCES

This article has three kinds of methodologies, out of which the first methodology is principal
component analysis (PCA)6 ; the second is intra-industry trade (IIT)7 ; and the third methodology is
cointegration test as mentioned by Doornik (1998) and Vector Error Correction Model (VECM) which
was applied in the study of Engle and Granger (1987). In PCA, the variables which have been used
are namely PCI and average institutional score (country-wise score from Free the World and Index of
Economic Freedom, The Heritage Foundation). The theoretical framework of using PCI in the
classification of countries is guaranteed by World Bank. Other framework is country-wise
institutional scores which state that better the institutional score, better is the development score
hence higher PCI (Kaufmann,8 et al., 2007). However, this framework hints at possible high
correlations between these two variables and when introspected, countries with high institutional
scores are not necessarily the ones with higher PCIs. Therefore, PCA enables to remove such
irregularities and gives final scores which are not correlated with PCI and institutional scores for
respective countries.

Country-wise data for this paper are available in the websites of, like, Free The World,14 Index of
Economic Freedom,15 The Heritage Foundation,16 Asian Development Bank,17 WITS,18 WTO,19
UNCTAD,20 Handbook of Indian Economy—RBI,21 UNCOMTRADE22 and so on.

RESULTS

PCA enables classification of the ASEAN into two groups based on institutions and PCI (but
uncorrelated). Signing FTA with the ASEAN brings forth improvements in OMI (one of institutional
variables) for India and the ASEAN; and structural break points in their bilateral trade. IT between
India and the ASEAN increases following FTA. However, increase in IIT is more in favour of bottom
ASEAN4. Cointegration test shows that improvement in institutional (OMI).

ECONOMIC CONCERT, COLLABORATION AND PROSPECTIVE OF TRADE

BETWEEN INDIA AND BRAZIL
OBJECTIVES

1. To examine the trends and patterns of growth of India’s trade with the Brazilian economy

2. To estimate of the extent of intensity of trade relations between Brazil and India

3. To classify the commodities with trade potential, which could enhance the trade relations
between the nations.

RESEARCH METHODOLOGY

The study is entirely based on the secondary data. The period covered under the study is of 17 years
(i.e., from 1995 to 2011). The attempt is to present a comprehensive picture of India–Brazil trade. A
representative bundle of 56 commodities at SITC digit-1 level has been selected by taking into
account their continuous presence in India–Brazil trade. The trade transitions have been assessed by
using revealed comparative advantage (RCA) index, revealed comparative disadvantage (RCD), trade
intensity index consisting of export intensity index (EII) and import intensity index (III) plus the trade
share analysis.

RESULTS

India is among the world’s 15 leading exporters and importers of services, while Brazil continues to
expand its services trade from a relatively small base. India and Brazil enjoy comparative advantage
for labour- and resource-intensive sectors in the global market. India enjoys comparative advantage
in the exports of labour-intensive items such as textiles and scale-intensive items such as chemicals
and iron and steel while Brazil enjoys advantage in manufacturing goods such as instruments,
sanitary fittings and capital-intensive products. Regarding trade intensity, there is a growing trend,
as the EII values for 10-year time period 1995–2004 present an average value of 0.58, the index
value which is lower than 1, which means a lower intensity of export trade of India with its partner;
however, from 2005 onwards there has been a growth with respect to the export intensity values
which were above 1. The highest III was registered in year 2009 which was 9.095. The III values
registered from 1995 to 2011 were greater than 1, showing a great intensity of India’s import trade
with Brazil. Given the proper policies and political will of Brazil and India, dynamic
complementarities can be built between both strategic possibilities.

INTERSTATE DISTRIBUTION AND SECTORAL COMPOSITION OF FDI

INFLOWS IN INDIA
OBJECTIVES

1. To identify the interstate distribution in the inflow of FDI to India.

2. To distinguish the sectoral distribution of FDI in India.
RESEARCH METHODOLOGY

Quantitative analysis of secondary data.

RESULTS

FDI is regarded as an inevitable form of capital flow by India, specifically after the liberalization
measures of the 1990s. India is on the edge of swift development nowadays. Simultaneously, we
face capital deficiency also. Hence, FDI can be seen as a valuable object in order to meet the ends of
capital deficiency and development.

An interstate comparison of FDI in India makes it quite apparent that there exists huge variations in
the inflow of FDI to different states. While some regions like Delhi and Bombay receive soaring flow
of FDI, it is very stumpy in regions like Patna, Guwahati, etc. As FDI is a major source of capital and
technology, these states which experience low inflow of FDI may lag behind the other regions in
terms of industrial development. This may create a distinct imbalance in the economic development
of the country, or may add momentum to the imbalanced regional growth.

An overview on the sectoral distribution of foreign investment discloses the wide disparity in the
distribution of foreign capital among various sectors. While some sectors like service, construction,
etc. receive elevated flow of foreign capital, others are fully ignored by the foreign investors. The
rationale behind this should be explored out immediately so that we can avoid a future distress in
our economy.

INDEX OF NON-TARIFF MEASURES: A STUDY OF THE EU TEXTILE AND

GARMENT MARKET
OBJECTIVES

The article attempts to construct comprehensive indices of non-tariff measures utilizing the time
series information on environmental and health-related legislations in the importing countries. The
EU T&G market is taken as a case study to illustrate the methodology.

RESEARCH METHODOLOGY

1. The Official Journal of the European Union and the website on European Union legislation
(eur-lex.europa.eu) provide comprehensive information on the rules and regulations
applicable to imports in the EU and its member countries.
2. This information is used to construct comprehensive indices of NTMs for Germany and the
rest of the EU3 T&G market for the years4 1988–2014. In the EU, there are three major
types of legal acts: regulations, directives and decisions
3. Regulations and decisions have binding legal force throughout every member state and
enter into force on a set date in all the member states. In case of directives, the members
are generally given a deadline within which to formulate and implement their own
legislation to meet the goals set in the directive.
 4. For constructing the index, NTMs belonging to the following two categories are taken into
account since all most all of the major NTMs in T&G sector fall under these categories: 1.
Direct regulatory instruments and Labelling

RESULTS

The indices of NTM are found to have a significant and positive impact on the growth of T&G exports
in case of both the rest of the EU and Germany. The strong positive effect of the NTM indices
suggests good compliance on the part of India with the EU standards. Relatively lower effect of the
indices on garments compared to textiles is amenable to two alternatives (though not mutually
exclusive) explanations: (a) textile being the direct product is more exposed to pollution, whereas
garment is a derived product from export where the possibilities of hazards are much less and (b)
possibility of greater regulatory leakages for the garment sector compared to textiles under the
network of outsourcing and subcontracting. Implementation of policies to check such leakages might
lead to an escalation of costs in the short-run but eventually, that would encourage better adoption
of environmental and labour norms to make trade sustainable.

AN ECONOMETRIC MODELLING OF TRADE FLOWS BETWEEN SAARC AND

ASEAN
OBJECTIVES

This research involves constructing a model for SAARC countries with ASEAN region within an
econometric framework. There exist different methods of linking trade flows among countries. We
have adopted the trade allocation approach in order to identify the trade relation of SAARC
countries with the ASEAN region. The problem of explaining bilateral trade flows is separated into
two steps. The first is the allocation of expenditure between domestic goods and imports at country
level. The second is the distribution of commodities according to their geographical origin. This
approach allows one to abstract from the simultaneous explanation of the volume of trade and its
origin, and concentrates only on the latter.

We like to examine what would have been the impact on exports of the SAARC countries to ASEAN
in 1998 had the ASEAN countries not experienced the currency crisis through a simulation exercise.
As such computation involves the projection of dependent variable (exports to ASEAN) beyond the
sample period, the assumed values of explanatory variables (imports of ASEAN and export prices of
SAARC countries) are needed for the year 1998.

RESEARCH METHODOLOGY

The data required for estimation of the model are based on bilateral exports of the SAARC countries;
export prices and exchange rates of SAARC countries and the total imports of ASEAN region. The
data on bilateral exports are collected from IMF's Direction of Trade Statistics Year Book, various
issues for al I countries under consideration. The series of export price index and exchange rate
(base 1987) have been taken from IMF's International Financial Statistics Year Book, 1998. The total
imports of ASEAN has been taken also from the published values of lMF's International Financial
Statistics Year Book, 1998. The countries covered under the ASEAN region are Indonesia, Malaysia,
Singapore, Philippines and Thailand. The data on total imports are measured in billion US dollars
whereas data on bilateral exports are measured in million US dollars.
The method first used for estimation is ordinary least square (OLS) method. However, the time
series data frequently suffers from problem of auto correlation. Whenever the problem of auto
correlation appears, as measured in terms of Durbin-Watson (DW) statistics, we use Cochran-Orcutt
Iterative procedure of order one (AR 1) to overcome this problem. The goodness of fit is measured in
terms of several statistics, like R2, F-statistics, OW-statistics, 't' ratio and standard error (SE). The
value in the parentheses below each coefficient gives estimated 't' ratio for the corresponding
coefficient. In some cases, the dummy variable (OUM) has been used to improve the goodness of fit
of the equation. The sample period chosen for estimation is 1976-97.

RESULTS

The estimated results show the expenditure effect (imports) on foreign commodity demand is
positive in most cases. The validation test shows the model performs reasonably well.

TRADE LINKAGES AND GROWTH IN LATIN AMERICA: AN SVAR ANALYSIS

OBJECTIVES

1. How has Latin American growth responded to shocks to traditional trade partners like the
United States and, to a lower extent, Germany and Japan? Have these responses changed by
the emergence of China as a global actor?
2. Are the healthy growth rates observed in Latin American during the 2000s a byproduct of
the Chinese juggernaut? If so, were they due to a closer bilateral relationship with China or
to secondround effects of China's boosting demand?
3. Even though the Chinese economy is the most emblematic case of a large fast-growing
emerging economy, the new global order has also witnessed the emergence of others. For
instance, Latin America is celebrating that Brazil has recently overtaken the United Kingdom
as the world's sixth largest economy. But, does a shock to the Brazilian economy exert
similar effects across the region than a shock to China? In other words, does a Brazilian
shock have global impacts?

METHODOLOGY

Two major points are considered. Firstly, aggregation restrictions are imposed into a standard,
potentially large reduced form VAR of growth rates, and we formally test their significance. These
restrictions not only promote parsimony but also identify a structural form and suggest suitable
instruments for estimation. Secondly, as in Abeysinghe and Forbes (2005) and Cesa-Bianchi et al.
(2011), we allow bilateral trade weights to evolve through time, thereby capturing the dynamics
reflected in a changing direction of Latin American trade toward emerging markets. This feature of
the model allows us to compute time-varying impulse response functions.

RESULTS

We find strong evidence supporting the increasing effects of China over Latin America's growth, in
agreement with Cesa-Bianchi et al. (2011). We also find weak but indicative evidence of diminishing
effects of the United States, Germany and Japan. On the other hand, our results indicate that
Brazilian shocks are qualitatively different to the Chinese ones, its second-round effects are only
important for a few neighboring countries. The results also point out that indirect effects of China's
growth can account for most of the Latin American growth in the 2000s.