Trade Liberalization Analysis

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Unrestricted trade stimulates economic growth and bridges socio-economic gaps existing in different countries of the world. India has adopted trade liberalization policies since the early 1990s with the same expectations. This study has empirically analyzed how trade liberalization has affected economic development of Indian country. Its effects have been examined with respect to five key measures of economic development: per capita GDP, income inequality, poverty, employment and productivity over the period from 1985-2011. The main analysis is based on a simultaneous equation model. Keeping in view the simultaneity of the chosen development measures, the model is estimated with the 2SLS technique of regression analysis. The analysis
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Trade liberalization is expected to affect PGDP positively. The investment level is also included in the model as it lead to increase PGDP through the multiplier effect.
Employment Level
It is defined as the total labor force which is employed in the country and expressed as a percentage of its working population. Here an individual who age’s 15 years and older is considered as working age population.
The employment level is expected to be positively affected by trade liberalization due to ease access to cheap raw material and capital machinery, which promote development opportunities in a country.
Trade Liberalization
It is the openness index which is represented by trade-GDP ratio i.e the sum of export and imports to that of the GDP.
X Total exports of country
M Total Imports of country
GDP Gross Domestic Product of India
As export increases the value of trade liberalization also increases and vice versa. . Hence, more openness Human Capital
It can be expressed as the skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.Here,
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In addition to this, growth and trade liberalization are negatively related to each other.
Trade liberalization has a positive impact on employment level. Interestingly, the total factor productivity is positively and significantly impacted by human capital and trade liberalization.
Conclusion and Policy implication
The purpose of the study is to examine whether the estimates of key development indicators for
India suffer from simultaneity bias. For this purpose we have developed a simultaneous equation model. The results suggested that the 3SLS technique gives effective coefficient estimates which could be used to drag more reliable policy recommendations.
Based on the findings we can conclude that:
· Increase in trade liberalization leads to decrease in poverty of India. As trade liberalization encourages the inflows of goods and services in the economy. Excess supply of goods and services, in turn, is expected to cause a decline in prices and thus increase the standard of
living of the people of the country. Poverty and growth are inversely related to per capita growth of Indian economy. As economy grows poverty of India decline.
· Trade liberalization leads to increase in distribution of income among individuals in
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