Gravity Model Testing of Trade Relationship between India and US

Abstract

The objective of the paper is to investigates the impact of global financial crisis on exports from India to the country of origin of Great Recession of 2007-2009 i.e., United States employing Gravity Model for the period 1985 to 2010.The paper also analysis the trade relationship between the two countries during the crises period through the dummy variable approach. Data has been collected from Bloomberg, NIC, CEPII, FRED, St. Louis fed’s database and World Bank. The results obtained from OLS regression procedure reveals the influence of deteriorating economic and financial conditions in United States on the export demand from India during crisis period. Further, while the stage of economic development of both countries concomitant with population of US only was found to have an encouraging role towards India’s exports to US, the population of India was unearthed to have a regressive disposition in the equation. The distance between the two countries has been found to play a regressive role in the trade relationship of two countries. Crises window 2007-09 is showing a negative impact but insignificant impact it turns out to be significant at 13%.