Economic Growth, Exports and Domestic Demand in India: In search of a New Pardigm of Development

Saroj Kumar Mahonty

Chapter 6 in Moving Toward A New Development Model For East Asia-The Role of Domestic Policy and Regional Cooperation, pp 191-222 from Economic Research Institute for ASEAN and East Asia (ERIA)

Abstract: Since the 1970s, several developing countries have witnessed remarkable transformation of their economies with Export-Led Growth (ELG) as a major development paradigm. Considering the latent limitation of the ELG to meet eminent stagnation in the long run, there were strong sentiments expressed by the East Asian countries towards switching over to alternative DDLG strategy after the ‘Asian Crisis’. It was debated in the literature that large countries like China and India pursued the policies of ELG and DDLG policies in different phases of global business cycle to ensure sustainability of high growth during the 2000s and after. The empirical evidence on this issue of examining ELG-DDLG hypothesis using cointegration in the VECM framework for the period 1974-2010 suggests that India has been using the twin development strategies alternatively in different periods to evade adverse effects of the global business cycle and to maintain sustained economic growth. India’s new version of export-led growth stance will continue as long as it has not exhausted its global competitiveness and becoming the part of the upper middle-income country. Considering India’s trade becoming ‘Asia Centric’, concentrating on imports for new phase of industrialisation and consolidating of its ‘Look East Policy’, Country’s integration with the EAS process would increase its trade dependence with the region.

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