Exchange Rate Volatility and India-U.S. Export at Commodity Level: Evidence from an Autoregressive Distributed Lag Approach

The paper focuses on the impact of exchange rate volatility on the trade flow between India and U.S. Previous research on the trade flow of India has concentrated on the overall aggregate export of India with a cross border nations. Many maintain the work on bilateral trade pair-wise although a very few have observed about the commodities trade at disintegrated scale. This paper explores Indian export trade at disaggregate by commodity-wise, undertaking 60 Indian exporting commodities to U.S. We apply generalized autoregressive conditional heteroscedasticity (GARCH) based models to gauge the real exchange rate volatility  and to discover the shortrun and longrun relationships, an autoregressive distributed lag model is applied on the time series data. The empirical analysis at disaggregate level of export indicates the shortrun as well as longrun effect of exchange rate volatility. However, the estimated shortrun effect which last onto longrun effect is in 16 exporting commodities. This paper provides more specific information about the relationship between exchange rate volatility and bilateral export commodities using individual level data. The finding of the study helps to undertake the view of invariability and considering the industry before policy making.