Economy Wide Impact of Trade Restrictions on Exporters: Evidence Based on a New Measurement Applied to India

Significant trade barriers exist worldwide despite formal efforts at lowering these. Against this backdrop, the present article proposes to examine the economy wide impact of import restrictions on an exporting country based on a new measure for trade restrictiveness. This measure is based on tariffs, non-tariff measures (NTMs) and border trade restrictions imposed by importing countries. Using India as a case, the empirical results of the article suggest that Indian exporters have been grappling with substantial trade restrictions over the years, particularly on account of NTMs. The economy suffered welfare losses due to fall in exports, output, employment, terms of trade and loss in allocative efficiency. Tariffs and NTMs have received much attention from academia and policymakers. But, due to their relatively smaller share in trade restrictions, trading across border restrictions has received much lesser attention. However, as observed in the present article, though border restrictions appear marginal, their welfare and other macroeconomic impacts are substantial. Hence, to ignore these restrictions is likely to result in significant underestimation of trade restrictions faced by exporters. JEL Codes: F1, F13, F140