Does economic policy uncertainty dampen imports? Commodity-level evidence from India

Abstract

This study investigates the effects of economic policy and financial market uncertainties on Indian imports. For this purpose, we consider a panel of 97 commodities imported to India during the period: September 2011 to January 2019. We utilize two panel estimation techniques, the Pooled Mean Group (PMG) and Cross-sectionally Augmented Distributed Lag (CS-DL), for the analyses. In the short-run, we find that economic uncertainty leads to more imports to India. Conversely, in the long-run, it has a dampening effect. Our estimates also reveal that both domestic and global economic uncertainties have a considerable impact on Indian imports. However, we do not find any noticeable impact of financial market uncertainty on the imports. For robustness purposes, we also make use of aggregated import data for a longer time-horizon. These results fairly validate the findings of the commodity-level analysis. Finally, our sectoral-analysis suggests that the imports of primary products are more sensitive to the policy uncertainty than those of the manufacturing products. Given that, our study offers detailed policy suggestions in the context of an emerging economy.