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Asia-Pacific Financial Markets

08.01.2024 | Original Research

The Role of Real Exchange Rate in India’s Service Export: Do Remittances Inflows Matter in Post Liberalization-Era?

verfasst von: Shreya Pal, Mantu Kumar Mahalik

Erschienen in: Asia-Pacific Financial Markets

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Abstract

This study assesses the effects of real exchange rate and remittance inflows on India's total service exports, comprising traditional and modern service exports, spanning the annual data from 1990 to 2020. The control variables for the service export function include developments in the banking sector and the stock market and net inflows of foreign direct investment. The ARDL model is the estimating technique of the present study. The real exchange rate has an adverse effect on total, traditional, and modern service exports, according to the long-run outcomes of the ARDL model. Remittance inflows are interestingly shown to support modern service exports while impeding total and traditional service exports. The growth of the banking sector is beneficial for traditional and total service exports, but it has a negative impact on modern service exports. All service exports are benefited by stock market development; however, net FDI inflows negatively impact all forms of service exports. Based on these results, the policymakers in India are advised to maximize the effective utilization of remittance inflows in traditional service exports. Additionally, proactive intervention by the central bank is recommended to mitigate the adverse effects of the real exchange rate on traditional and modern service exports. This study also provides valuable insights for the policymakers and practitioners seeking to enhance India's service export performance while navigating the complexities of real exchange rates, remittance inflows, and financial factors.

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Data for the total modern service exports spanning from 2004–2020. Because of this data unavailability prior to 2004, we have extrapolated the modern service export data from 1990–2003. On the other hand, the standard deviation of modern service export is too high which shows the data are heterogeneous in nature. The logarithm can be a way to remove this issue, but the presence of negative values in the dataset of modern service export becomes a barrier. Therefore, we have added 80,000 with each value of modern service export and finally taking the logarithm of it.

As per the data of Reserve Bank of India, the traditional service (TTSE) comprises with communications, insurance, transportation, travel, construction, and personal, cultural and recreational services, whereas the modern service (TMSE) consisted with finance, computer and information, royalties and license fees and other business services. The details of these data are described in the study of Anand et al. (2015), Mishra (2015) and Sahoo et al. (2019).

The critical values of Narayan (2005) are appropriate for the sample size of N < 50.

The ECT term signifies that how fast dependent variables (total service exports, traditional and modern service exports) converge to the long-run equilibrium. The highly significant error term indicates a stable long-run association across the models (Bannerjee et al., 1998). Therefore, the negative and significant error term should be expected from the analysis to get a stable long-run analysis.

Please see TableA1 in the appendix.

We have taken 2016 as the break year for total traditional service export in the empirical analysis because total traditional service export is stationary at first-differences as per the result of Zivot-Andrews unit root test, therefore, the level break year (2015) cannot be taken in this study rather we have used first-differenced break (2016) year.

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Titel: The Role of Real Exchange Rate in India’s Service Export: Do Remittances Inflows Matter in Post Liberalization-Era?
verfasst von: Shreya Pal
Mantu Kumar Mahalik
Publikationsdatum: 08.01.2024
Verlag: Springer Japan
Erschienen in: Asia-Pacific Financial Markets
Print ISSN: 1387-2834
Elektronische ISSN: 1573-6946
DOI: https://doi.org/10.1007/s10690-023-09444-5