Global Economic and Financial Crisis: India's Trade Potential and Prospects, and Implications for Asian Regional Integration

Abstract

This study estimates the trade potential for India using an augmented Gravity model and then attempts to determine the importance of trade remedies. Based on the panel data, this Gravity model is the first-ever attempt to estimate India's trade potential in the pre- and post- global economic and financial crisis period. The estimates of India's global trade potential reveal that the magnitude of India's trade potential is at its maximum in the Asia-Pacific region, followed by Africa and Latin America. Potential for expansion of trade in the post-crisis period is highest for countries such as China. However, in a large part of the world, India's trade has remained unrealized, which provides further opportunities to expand despite the slowdown in global demand. Nonetheless, there is a strong complementary role, as this study indicates; i.e., tariff liberalization and trade facilitation, which taken together can help build export momentum in the crisis period.