Investment-led Trade Integration: An Assessment from India’s Sectoral Perspective with Its Trade Agreements

The article examines the impact of trade and foreign direct investment (FDI) across different sectors and regions by analysing India’s Comprehensive Economic Partnership Agreements (CEPA) with South Korea and Japan, as well as its free trade agreements (FTA) with ASEAN and SAARC. To assess trade integration, the study calculates an intra-industry trade index for key export sectors covered under these agreements. The primary objective is to evaluate the relationship between FDI and India’s trade integration before and after the implementation of these trade deals. Using panel data from 2003 to 2019, the study investigates the interactions among key variables. Panel unit root tests confirmed that the data series became stationary after taking the first difference. Additionally, the Kao residual cointegration test established a significant long-term positive relationship between the explanatory variables and trade integration. The findings suggest that FDI significantly influences trade integration, with the nature and magnitude of the relationship varying across agreements and time periods. The study also offers policy recommendations to enhance the synergy between investment and trade integration.