Determinants of Extensive and Intensive Margins of Indian Agriculture: Gravity Model Analysis

Abstract

The paper examined the intensive and extensive margin of India’s agricultural exports and identified the determinants of the trade margins using a gravity trade model. Panel data on India’s bilateral agricultural trade with 20 major partner countries for thirty years from 1991 to 2020 is constructed under the HS-6-digit classification of 600 agricultural products for the analysis. The intensive and extensive margins of India’s agricultural exports are calculated using the Hummels and Klenow method. The determinants of extensive and intensive margins of India’s agricultural trade are identified based on the gravity model of trade framework using estimation methods of Feasible Generalised Least Squares (FGLS) and Pseudo Poisson Maximum Likelihood (PPML). The results showed that the extensive margins are more dominant than the intensive margins over the thirty year period. The gravity model revealed that variables such as relative economic magnitude, relative economic freedom, distance, relative agriculture value added, relative crop production, relative purchasing power, trade agreements, and common language significantly influence the extensive and intensive margins of India’s agricultural exports. The results imply that for sustained agricultural export growth, India should pursue policies for identifying new export destinations and deepen existing products by taking initiatives to strengthen the determinants identified in the study.

Keywords: Agriculture Exports; Extensive Margin; Intensive Margin; Gravity Model