Empirical Study of India’s Trade and Investment Relations with ASEAN Countries : Evidence from the Gravity Model Theory

The study aimed to identify the policy determinants impacting India’s trade and investment relations with ASEAN countries using a gravity model in conjunction with panel data methodology. There were no missing values in the data set, so econometric techniques like the fixed effect model and the random effect model were applied, and based on the Hausman test estimates, the fixed effect model was selected for analysis purposes. The study’s findings reported that the product of GDP was directly proportionate to trade, while the product of population was inversely proportionate. Distance was negative to work more on trade liberalization policies, as the coefficient of India’s trade openness was positive but insignificant, reflecting the improvement in the transportation system. It was observed that India has needs, but they are insignificant compared to those of ASEAN countries. The findings regarding investment relations confirmed that the GDPof ASEAN countries, the urban population of ASEAN countries, the debt-to-GDP ratio of ASEAN countries, the saving-to-GDP ratio of ASEAN countries, and the Indian diaspora in ASEAN countries had a positive and significant impact on India’s investment relations with ASEAN countries. The important contribution of this study is that it extended the application of the gravity model to the area of analyzing the investment relations between India and ASEAN countries.