Spillover Effects of Merchandise Export on Non-Export Sector in India: Does Composition of Export Matter?

Abstract

This paper examines the relationship between merchandise exports and non-export sector GDP both at aggregate and disaggregate levels in the Indian context for the period 1988-2012. The findings of the study indicate that there exists a long-run relationship between non-export GDP and capital, labor, capital goods imports, manufactured exports, primary exports, and petroleum product exports. Further, at aggregate level, merchandise exports have a positive effect on the output of nonexport sector, thereby supporting export-led growth, while at disaggregate level, primary product and petroleum product exports are found to have a statistically negative impact, whereas manufactured product exports have a statistically positive impact on non-export GDP. Thus, it is not the case that India can simply increase its exports per se and be sure of witnessing economic growth, but instead it is the composition and concentration of these exports that matters.