A Study of India’s Trade Flows with the ASEAN: Gravity Model Analysis

Abstract

This research aims to see how the Association of Southeast Asian Nations Free Trade Agreement (ASEAN FTA) affects the merchandise trade of India. As a research approach, this work employed the gravity model with panel data estimation. The data has been derived from 27 trade partner nations with three key economic blocs for the period 2011 to 2020. Under diagnostic testing, panel data regression was estimated with Ordinary Least Square (OLS), fixed effects and random effect models. The white test applied for heteroskedasticity bias encountered as usual in the OLS method. The random effect model significantly outperforms the fixed effect model in the Hausman Specification test. The result of the Generalized Least Squares (GLS) Random Effect revealed that India’s Gross Domestic Product (GDP) and the GDP of destination countries have a significant impact on overall trade, whereas geographical distance, common official language, common border, landlocked variables show an insignificant result. ASEAN-India FTA (AIFTA) has negative coefficients and an insignificant impact on India’s trade.