Assessing the Role of Trade in Transmission of Global Financial Crisis to the Indian Economy

Rajesh Raj, Sanjib Bordoloi and Nalin Bharti

MPRA Paper from University Library of Munich, Germany

Abstract: Over the past few decades, while trade has contributed significantly to economic growth in various economies including India, openness has also exposed them to vagaries of external shocks. While recent global financial crisis (GFC) essentially originated in advanced economies, it got transmitted to emerging market economies through three main channels viz., financial, trade, and confidence channel. Relatively, while financial channel had a more dominant role in transmitting global shocks to Indian economy, its growing trade openness had led to decline in both exports and imports from the latter half of 2008 till 2009. Against this backdrop, this study primarily focuses on studying the impact of trade shock emanating from GFC on the Indian economy. In empirical analysis, it is found that the impact of recent trade shock on the economy remained minimal and short-lived. Under S-VAR framework (quarterly data from 1996-97 to 2009-10), impulse response analysis suggests that the impact of export demand on India’s gross domestic product (GDP) persists for a short while, which is validated by recent strong rebound of the economy in the aftermath of global financial crisis. This is in line with our expectations as GDP growth in India is primarily driven by domestic consumption, while external demand plays a minimal role.

Keywords: Trade; Financial Crises; Open economy; India (search for similar items in EconPapers)
JEL-codes: F14 F43 G01 (search for similar items in EconPapers)
Date: 2011-08, Revised 2011-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Indian Journal of Economics & Business 4.10(2011): pp. 533-552

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