This paper contributes to two strands of literature on empirical models of trade flows
and trade policy. The first and the older strand is that of gravity models of bilateral
trade flows going back to Hans Linneman (1966) and Tinbergen (1962) and its recent
applications, particularly by Adams et al (2003) and De Rosa (2007) in analyzing the
impact of Preferential Trade Agreements (PTAs). Our focus is on applying the gravity
model to analyze India’s trade flows (exports and imports) with its trading partners
around the world and to examine the impact of various PTAs in which India or its
trading partner or both are members. Clearly this is of interest, since, from 1991 India
is aggressively negotiating and concluding PTAs of which South Asian preferential
trade (and later free trade) agreement is the most prominent. We find that India is not
well served by its pursuit of PTAs and should instead push for multilateral trade
liberalisation by contributing to conclusion of the Doha round of negotiations with an
agreement beneficial to all WTO members.
The second and the more recent strand is the analysis of trade flows using data on
exports of individual firms. It is well known that in all countries of the world
relatively few firms participate in world trade, thus suggesting that characteristics of
a firm (such as its size and productivity) are relevant besides country level barriers on
trade matter for participation in world trade. This strand is rapidly growing. Ours is
one of the very few attempts at modeling and estimating the decision of Indian firms
on their participation using firm level data. The paper reports on our preliminary
results. We have also collected primary data from a sample survey of firms to explore
this issue deeper. While these data are yet to be fully analyzed, nevertheless some
preliminary descriptive tables summarizing them are included in an Appendix.