A Gravity Model Approach to Indo-ASEAN Trade-fluctuations and Swings

Abstract‘Trade is an engine of growth’ holds true for all economies. After 1991, the volume, direction and destination of India's trade were influenced by ASEAN neighbours. Considering the analysis period from 1971 to 2010 to study Indo-ASEAN trade, the Hausman test favoured the fixed effects and random effects. The core gravity model that we had derived helped us to deduce that distance rather than economic size of the trading partner has dominated India's direction of trade. The augmented gravity model, of Frankel, was used to analyse India's bilateral external relations with contiguous countries and with landlocked countries. The extended analysis included population and per capita income to observe the significance of size and distance. An important research gap regarding analysis of the uniformity pattern of Indo-ASEAN trade exists and we have used both the fluctuation and swing indices to infer that a systematic pattern emerges whereby the expected GDP swings of India matches with her observed GDP swings-the recurrent uniformity is present with a lag period of two years in post liberalisation period