Dynamic Relationship between Trade Balance and Macroeconomics Variables in India

Abstract

After the industrial development since independence, India’s foreign trade has undergone a complete change and is no longer confined to a few countries trading in few commodities. Export is one of the important elements that boost the India’s GDP over the years. This study investigates the relationship of trade balance with other macroeconomics variables such as exchange rates, money supply and GDP i.e. domestic income of the country, with covering a time period of 18 years from 2000 to 2018. This paper examines the short run and long run relationship between the variables with the help of the Auto regressive Distributed lag (ARDL) model. The results stated that the Money supply and GDP that affect the trade balance significantly while exchange rate affects it by insignificantly. Further research can include other macroeconomics variables to explore the impact in the trade balance and give more clear results regarding this.