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Impact of exchange rates on exports from India’s sub-national economies: An empirical investigation

Khee Giap Tan (Lee Kuan Yew School of Public Policy, National University of Singapore, Singapore)
Sasidaran Gopalan (Graduate School of Public Policy, Nazarbayev University, Astana, Kazakhstan)
Jigyasa Sharma (Lee Kuan Yew School of Public Policy, National University of Singapore, Singapore)

South Asian Journal of Business Studies

ISSN: 2398-628X

Article publication date: 23 May 2019

Issue publication date: 23 May 2019

201

Abstract

Purpose

The purpose of this paper is to examine the impact of real effective exchange rates (REER), both in terms of levels and volatility, on the export performance of India’s sub-national economies, given the recent slowdown in India’s exports.

Design/methodology/approach

India’s export distribution is highly asymmetric, with 90 percent of India’s exports concentrated in 11 sub-national economies. Exploiting this concentration, this paper constructs a panel data set using available data between 2002 and 2014 to understand the relationship between REER and exports from the top exporting cluster. Moreover, the paper constructs a sub-national competitiveness index to capture the supply capacity of the states.

Findings

The empirical findings of this paper reveal that a higher REER volatility deters exports and movements in REER do not matter as much as volatility. The most significant finding of the paper is that state competitiveness is the most crucial factor affecting trade. Therefore, policy makers at the state level must lay more emphasis on the supply side such as addressing logistical bottlenecks to help revive exports growth.

Originality/value

This study makes a departure from the plethora of extant aggregate-level studies by examining the relationship between REER and exports at the sub-national level for India. Considering the highly skewed distribution of India’s exports, the study provides important insights into the exporting patterns and determinants that are at play at the sub-national level.

Keywords

Acknowledgements

The empirical analysis in this paper deals with merchandise exports as data for services exports at the sub-national level is not available for Indian sub-national economies.

Citation

Tan, K.G., Gopalan, S. and Sharma, J. (2019), "Impact of exchange rates on exports from India’s sub-national economies: An empirical investigation", South Asian Journal of Business Studies, Vol. 8 No. 2, pp. 166-184. https://doi.org/10.1108/SAJBS-09-2018-0100

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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