What Drives India's Surge in Service Exports?

Abstract

India's prowess in the service sector has been recognised the world over. Sustaining services exports is important not only to sustain India's high growth rate but also to compensate for a consistent deficit in merchandise trade and to maintain stability on the external sector. In this context, we analyse the factors of India's performance in services exports over the past three decades. The results reveal that endowment factors such as human capital, improvement in physical infrastructure and financial development are key drivers for India's surge in services exports along with world demand, exchange rate and manufacturing exports. While factors such as institutions, R&D expenditure, telecommunication, foreign direct investment and financial development significantly impact the export of modern services, traditional services exports are more dependent on infrastructure development, manufacturing exports, world demand and exchange rate. India's economic reforms in the financial sector, FDI, communication so far have helped the services exports, but India needs to focus on supply‐side factors to improve the competitiveness – and thereby volume – of services exports.

Access to Finance, Technology Investments and Exporting Decisions of Indian Services Firms

“…As discussed before, the different nature and trade barriers faced by different types of services makes this distinction relevant from an academic and policy perspective. This distinction is particularly relevant in India given the increasing prominent role of its modern service sector in GDP and international trade (Sahoo and Dash, 2017). Fourth, we investigate these issues in the context of India, which is notable for the development of its services sector and modern financial sector, yet with a weak legal institutional setting and ineffective investment protection obstructing the well-functioning of its financial market.…”

“…8 Máñez et al (2014) use cash flow to measure internal financial constraints and the cost of firms' new longterm debt to measure the external financial constraint, while Altomonte et al (2015) employ bank credit rationing to proxy for financing constraints. 9 As documented by Sahoo and Dash (2017), the share of service exports in Indian GDP increased from a modest 1.4% in 1990-91 to 7.7% in 2011-12, and on a global scale, Indian service exports grew about 6 times faster than the world's total exports during the same period. This expansion of services exports was supported by increasing technological investments, such as R&D and improvements in information and communication technologies, which reduced firms' barriers to accessing foreign markets.…”

“…Given the heterogeneous nature of the service sector in India, in our empirical analysis we distinguish between 'modern services' (such as software, business and telecommunication services) and 'traditional services' (such as travel and transportation). As pointed by Sahoo and Dash (2017), the wide range of activities encompassing the service sector imply that service firms operate differently and face diverse levels of trade barriers. Understanding whether firms' reliance on various sources of finance for exporting and investing in technology varies across service industries is therefore relevant from an academic and public policy perspective.…”

“…Understanding whether firms' reliance on various sources of finance for exporting and investing in technology varies across service industries is therefore relevant from an academic and public policy perspective. To our knowledge only Sahoo and Dash (2017) have examined the determinants of service exports in the modern and traditional sector in India from a macroeconomic perspective.…”

Aid for Trade flows and Recipient-Countries' Integration into the World Market for Services Exports: Do Merchandises Exports and Foreign Direct Investment Inflows matter?

“…The education level variable (proxied here by the secondary school enrolment rate) has been included in model(1) because almost all empirical studies on the determinants of services exports have emphasized the importance of an educated workforce for the promotion of services exports (e.g., Eichengreen and Gupta, 2013a, 2013b;Goswami et al, 2012). Similarly, financial development is key for the enhancement of services exports (e.g.,Sahoo and Dash, 2017). Finally, institutions matter for export dynamics (e.g.,Araujo et al, 2016).…”