India's Trade and Investment Landscape: Insights into the Export–Energy–Exchange Rate Nexus

Abstract

Background: India’s merchandise exports are influenced by interrelated trade, investment, production, energy and exchange-rate conditions. Aim: The study examines the short-run and long-run determinants of India's merchandise exports, focusing on the role of foreign direct investment, industrial production, merchandise and energy (oil) imports, and the real effective exchange rate. Research Gap: Prior studies examine India's export determinants largely in isolation and rarely combine foreign investment, industrial production, merchandise and energy imports, and the exchange rate within a single ARDL-ECM framework that also accounts for the COVID-19 structural break; this study addresses that gap. Study Design: Quantitative, time-series econometric study. Place and Duration of Study: Sample: India. Quarterly data from 2000-01 to 2023-24 were obtained from the Reserve Bank of India (RBI), the Bombay Stock Exchange (BSE), and the Centre for Monitoring Indian Economy (CMIE). Methodology: The study uses secondary data for the period 2000-01 to 2023-24 and employs the autoregressive distributed lag (ARDL) approach to estimate short-run and long-run relationships between merchandise exports and their determinants (BSE market capitalisation, CPI, FDI, IIP, merchandise imports, oil imports, REER, R&D, and a COVID-19 dummy). The error correction model (ECM) was further used to measure the speed of adjustment towards long-run equilibrium, and Granger causality analysis was applied to evaluate the direction of causal relationships among these variables. Results: The results show that foreign direct investment, industrial production, merchandise imports, oil imports, and the exchange rate significantly influence merchandise exports in both the short run and the long run, while BSE market capitalisation, CPI, R&D, and the COVID-19 dummy are not statistically significant. The error correction term confirms that short-run deviations adjust back towards long-run equilibrium. Granger causality results indicate a predominantly unidirectional relationship between the macroeconomic variables and merchandise exports. Conclusion: The findings indicate that trade- and investment-related factors - particularly FDI, industrial production, imports, and exchange-rate competitiveness - have significant implications for India's export performance. Policymakers should prioritise measures that strengthen industrial output, sustain FDI inflows, and maintain exchange-rate competitiveness to support merchandise export growth.