India - saarc trade in recovering markets: an augmented trade model

Abstract

The purpose of the paper was to investigate trade patterns exhibited by Emerging Market Economies like India, by using influential traditional trade models. It examined India’s trade with its SAARC partners, as also with the top five trading nations from 2000 to 2012. Using time series analysis, a set of regression models was used to assess the effect of augmented gravity indicators and relative factor endowments (Heckscher-Ohlin Theorem) on India’s trade. These (extended) traditional models were unable to explain observed trade patterns. The paper recommends an ‘Augmented Trade Model’, incorporating additional variables influencing trade for overcoming gaps in existing trade models. Additionally, such a model would have important policy implications for encouraging intra-regional trade as an ‘engine of growth’ in post-crisis recovering markets.