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Is Devaluation Working? Evidence from India in Phase of Economic Liberalization

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Abstract

Using the data from a developing country like India, we offer an empirical analysis to examine the relationship between devaluation of the Rupee and the real trade balance with her major trading partners since the liberalization process that began in July 1991. Exploiting the recent advances in panel-data time-series econometrics, we document that devaluation may not be effective in improving trade balance in the long run. Success may follow only if the policymakers view devaluation as a short run tool to improve the trade balance. Nominal devaluation is unable to alter real exchange rates substantially and hence, the inflationary impact of devaluation is large in India.

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  1. Indira Gandhi Institute of Development Research, Mumbai, India

    Kausik Chaudhuri

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  1. Kausik Chaudhuri
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Correspondence to Kausik Chaudhuri.

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Chaudhuri, K. Is Devaluation Working? Evidence from India in Phase of Economic Liberalization. J. Quant. Econ. 3, 67–81 (2005). https://doi.org/10.1007/BF03404626

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