Export response to trade liberalisation in india: a cointegration analysis - Essay Example

After setting up of WTO with an aim to enhance international trade to a large extent by demolishing all kinds of trade barriers imposed by individual countries, the member states of WTO has been making extensive efforts to liberalize their trade with each other and with other countries as well. India is not an exception. In India, efforts to liberalize trade by reducing different trade barriers have been started to be undertaken since the initiation of economic reform in this country during the decade of 1990s.

Trade liberalization nowadays is given significant importance for the reason that enhanced foreign trade is expected to boost the economic growth as well as the extent of exports of the country. Theory suggests a close link between foreign trade and economic growth. There have been a large number of theoretical and empirical works, which have tried to examine the link between international trade and economic growth. While a number of studies have found a positive association between enhanced international trade and economic growth, a large number of studies have also refuted the claim on the basis of their research that international trade facilitates economic growth.

The relationship trade liberalization and performance of the economy is a very controversial issue. (Edwards, 1998) It can be said without any doubt that trade is a very strong source of enhancing economic growth and in most of the countries, particularly in less developed or developing countries international trade is prominently prescribed as a measure of boosting economic growth. Nurske (1961) called international trade an “engine of growth”. Kravis (1970) also recognized the importance of foreign trade and called it “handmaiden of growth”.

Trade theorists like Bharwali, Thirlwall has also recognized trades great importance in the process of economic growth. They have found that international trade is very much