Advantage From Trade:An Input-Output Approach

This paper develops a methodology for measuring the advantage which an economy gains from its foreign trade in a static, input-output framework. The advantage is measured in terms of the Stimulus and the Net Stimulus to the output generated by the exports and imports. The methodology has been applied to the Indian economy for the period 1951-52 to 1983-84, using six input-output tables. It is generally expected that with trade liberalisation (i.e., outward-orientation), the advantage to the domestic economy from foreign trade increases. However, the case of the Indian economy shows that the advantage from trade need not increase with opening-up. The share of foreign trade in total output and the advantage from trade seem to be loosely related. The advantage from trade seems to be most affected by the composition of exports and imports. Moreover, it has been found that the increase in manufactured exports need not be more beneficial to the domestic economy as is generally believed.