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Keywords

CAGR; Economic partnerships; FTAs; Gravity model; India-US trade agreement JEL Classification: F3; F15; F17

Abstract

This paper examines the potential impact of an India-U.S. FTA on India’s trade. We use two approaches to estimate trade effects, compound annual growth analysis and Gravity model estimation. Our sample spans the period from 1992 to 2019 and consists of seven bilateral trade agreements and three multilateral trade agreements which include 24 countries as our treatment group. In both cases we compare the impact on India’s trade following a trade agreement with a control group which we create by including those countries whose trade share exceeds one percent of India’s total trade (in 2019). Our CAGR analysis shows that trade (after an agreement) with the treatment group outperforms the control group although the results are not symmetric for imports and exports. The Gravity estimation confirms the results. We find that participation in a trade agreement is associated with a 42 percent jump in imports compared with a 28 percent increase in exports. The results show that following a trade agreement with the U.S., India is likely to experience a worsening trade balance. However, increased exports, especially manufacturing exports, to the U.S. is likely to benefit the Indian economy. Thus, an India-U.S. trade agreement may be beneficial to India.

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