How partner similarity impacts India's economic integration agreements & trade margins? An empirical analysis

The paper explores how export growth related to trade margins is affected in the presence of integration agreements and understands if deeper integration agreements affect these dynamics that are different from shallower agreements for India during 2000-2020. Through the World Integrated Solutions (WITS), the export information was sourced from UN-COMTRAD, and is categorized by product type at the HS 6-digit levels. Additionally, the results for export growth varying for the same depth/type of agreement in force also motivate an investigation into how these dissimilarities between India and its trading countries drive the difference in the outcomes. The reason for this novel approach is based on the theory that fluctuations in trade costs also impact trade margins. As a result, the integration agreement going into effect, along with the differences in distance, income, and size used in the analysis, serve as stand-ins for the trade cost variables and have a direct effect on trade margins. Analysis using an augmented gravity model with lagged terms suggests that relatively deeper agreements can facilitate growth along the trade margins even in case of higher trade costs stemming from greater regional disparity between the partner nations, hence compensating for higher dissimilarities. Moreover, it offers insights for formulating export promotion policies suited to the intended channel of export growth and the trading country-pair's dynamics.