An Empirical Analysis of Sectoral Export Demand Elasticities and Trade Policies: The Case of India

This article contributes to the existing literature on India’s exports by estimating price and income elasticities for different export categories. The objective is to identify potential policy implications associated with sectoral export elasticities. The analysis focuses on five categories of exports: (a) goods and services exports, (b) goods exports, (c) services exports, (d) food exports and (e) merchandise exports. Annual data spanning the period 1994–2021 is used for the analysis, and the bound testing cointegration approach based on the Auto-Regressive Distributed Lag (ARDL) method is employed to estimate export elasticities for each category. The study finds that sectoral price elasticities of exports are inelastic and small in magnitude, suggesting that although a currency depreciation would lead to an increase in demand for its exports, it is not expected to have a positive impact on the aggregate export earnings of India. Income elasticities, however, are positive and large in magnitude, implying that India’s export performance is significantly responsive to changes in global income levels. Hence, an understanding of income export elasticity in different sectors provides valuable insights for policymakers to tailor strategies in an evolving global economic landscape.