Gravity Model: India's Exports

The Gravity model has created somewhat strong interest amongst trade economists since 1990s. While the model has explained trade direction of many countries only a few studies focus on India's case. Indian international trade has increased tremendously in last 25 years, thanks to the renewed vision of realizing the gains from trade and more liberal trade policies. These changes are also supported by a huge improvement in technology sector.&nbsp; <br> The present paper investigates the regional and commodity diversification of India's trade and specifically tests the Gravity model. The trade between two countries is dictated by sizes of their GDPs and the distances. Clearly higher GDPs of both countries would increase the trade volume of these trading partners, while increase in distance between the two is expected to lower the exports. India's trade primarily has been with many Asian and European countries and with USA. We shall test whether this trade fits the explanation of the Gravity model or not. For the sake of suitable estimation we use only exports of India as a proxy for her total trade volume.&nbsp; <br> After the introductory section, Section 2 explains the theoretical part of the Gravity model and reviews the literature. &nbsp;Section 3 explains the trade relations of India with other countries and tests the Gravity Model for its relevance. Section 4 summarizes the results and makes the conclusion. Our results are robust, indicating that both hypotheses fit well for Indian exports.&nbsp;