Determinants of Import Intensity of India’s Manufactured Exports Under the New Policy Regime

Abstract

This paper attempts to understand the factors behind the significant increase in import intensity of India’s manufactured exports that has taken place in the post-reform period. The industry-level analysis indicates that the increase in import intensity of manufactured exports is attributable partly to changes in product composition of exports and partly to growing export orientation of Indian manufacturing industries. A major contributing factor appears to be the liberalization of import policy in India.Firm-level econometric analysis reveals that exporting firms are more import intensive than non-exporting firms.A significant positive impact of export intensity on import intensity of firms is clearly indicated.The econometric results also show that firms’ decisions to import and export are interdependent. Both decisions may be rooted in firm heterogeneity.