On the Link between Indian Rupee and Its Trade in Services: An Asymmetric Analysis
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Almost all studies that have estimated trade models have relied upon trade in tangible commodities. However, a new direction today is to consider trade in service sectors to identify the sectors that could benefit from currency depreciation. This new literature is in its infancy, and we add to this emerging literature by considering India’s trade in eight service sectors/categories. We followed two approaches of symmetric (linear) and asymmetric (nonlinear) estimation methods and considering that the two approaches complement each other, we found that the outpayments and inpayments of all the eight sectors respond to changes in the effective exchange rate of Indian Rupee in the short run. But in the long run, only six service categories are affected. The two unaffected sectors are insurance and travel.
Abstract
Almost all studies that have estimated trade models have relied upon trade in tangible commodities. However, a new direction today is to consider trade in service sectors to identify the sectors that could benefit from currency depreciation. This new literature is in its infancy, and we add to this emerging literature by considering India’s trade in eight service sectors/categories. We followed two approaches of symmetric (linear) and asymmetric (nonlinear) estimation methods and considering that the two approaches complement each other, we found that the outpayments and inpayments of all the eight sectors respond to changes in the effective exchange rate of Indian Rupee in the short run. But in the long run, only six service categories are affected. The two unaffected sectors are insurance and travel.
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