The analysis of India’s trade relations with its neighbors: implications of regional cooperation and development

Abstract

This study conducts a detailed analysis of India's multilateral trade with its nine neighbors-Afghanistan, Bangladesh, Bhutan, Myanmar, Maldives, Nepal, China, Pakistan, and Sri Lanka–based on the gravity model of trade. This study adopts a quantitative research approach to analyze India's trade with its neighbors. It evaluates the significance of neighboring economies in India's overall trade structure and their integration with subregional economies. The study is based on key trade variables, including multilateral exports and imports with neighbors, total multilateral trade, the trade balance, and the shares of India's exports, imports, total trade, and the trade balance in total trade. The analysis uses secondary data from official statistics published by the Ministry of Commerce, Government of India. Data were collated and pre-processed in Microsoft Excel, and econometric analysis was performed in RStudio. It includes descriptive statistics, correlation diagnostics, and panel data estimation methods based on gravity equations. In particular, Ordinary Least Squares (OLS), fixed- and random-effects models were estimated in a pooled framework to investigate the determinants and dynamics of multilateral trade with neighboring countries. The empirical results suggest that bilateral and multilateral export–import relationships between India and its immediate neighbors greatly influence regional trade. The coefficients of exports and imports of neighboring countries are statistically significant across all model specifications, implying that higher multilateral trade flows lead to higher trade flows in the region. The models' explanatory power is high (R² ranges from 0.945 to 0.972), and tests show the superiority of the fixed-effects model. However, India's global export and import levels are statistically insignificant in explaining regional trade flows. In summary, the findings suggest that multilateral trade remains the primary driver of India's regional trade. This study suggests that increased economic integration, structural reforms, and trade connectivity with neighboring nations are needed to promote regional integration and sustainable growth.