Does Difference in Environmental Standard Influence India’s Bilateral IIT Flows? Evidence from GMM Results

Abstract

In the recent past, India has entered into several regional trading agreements (RTAs) with the objective of export promotion, on the one hand, and deepening participation in the global value chains, on the other. The consequent rise in Indian exports had been accompanied by a simultaneous import growth, given the trade preferences for partners through RTAs as well as ongoing unilateral tariff reforms. The rise in simultaneous exports and imports has enhanced the country’s intra-industry trade (IIT) level. Recently, India has engaged in RTA negotiations with several developed countries, which are characterized by more stringent environmental standards. The current analysis attempts to identify factors that influence India’s bilateral aggregate IIT index in a dynamic panel framework. In particular, it attempts to assess whether greater divergence in environmental standards adversely influence India’s IIT patterns. The empirical estimates reveal that India’s IIT is found to be relatively higher with countries that are technologically more advanced and have relatively stringent environmental standards. The observation indicates that India is possibly specializing in relatively low technology-intensive products vis-à-vis its developed trade partners. The analysis concludes that India would be better off by facilitating innovation and adhering to a higher level of environmental standard. JEL Codes: F13, F14, F15, F18