Research on World Agricultural Economy

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

Averyl Pires

St. Xavier’s College, Mapusa‑Goa 403507, India; Goa Business School, Goa University, Taleigao‑Goa 403206, India

B. P. Sarath Chandran

Goa Business School, Goa University, Taleigao‑Goa 403206, India

DOI: https://doi.org/10.36956/rwae.v5i4.1199

Received: 27 July 2024 | Revised: 12 October 2024 | Accepted: 15 October 2024 | Published Online: 29 November 2024

---

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

---

References

[1] FAO, 2010a. Agricultural trade, trade policies and the global food system. FAO Agricultural Trade and Policy Series, Report No. 2010/1, June 2010. Available from: https://www.fao.org/4/y4252e/y4252e11.html

[2] DGCI, 2020. Foreign trade of India. Report No. 2020/12, December 2020. Available from: https://www.dgciskol.gov.in/foreign_trade_statistics.aspx

[3] Chand, R., Singh, J., 2023. From Green Revolution to Amrit Kaal lessons and way forward for Indian agriculture. NITI. WP 02/2023. DOI: https://doi.org/10.13140/RG.2.2.24291.12320

[4] IMF, 2024. World economic outlook: The global economy in a sticky spot. IMF World Economic Outlook Report No. 2024/1, April 2024.

[5] Bhatia, J., Mehta V.P., Bhardwaj, N., et al., 2021. Export-import performance of major agricultural commodities in India. Economic Affairs. 66. 117–126. Available from: https://www.researchgate.net/publication/351605501_ExportImport_Performance_of_Major_Agricultural_Commodities_in_India

[6] Melitz, M., 2003. The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica. 71(6), 1695–1725. DOI: https://doi.org/10.1111/1468-0262.00467

[7] Kumar, K.N.R., 2022. Competitiveness of Indian Agricultural Exports: A Constant Market Share Analysis. Research on World Agricultural Economy. 3(2), 514. DOI: http://dx.doi.org/10.36956/rwae.v3i2.514

[8] United Nations, 2021. UN Comtrade database. New York: United Nations Commodity Trade Statistics Database. Available from: https://comtrade.un.org/

[9] WTO, 2020. World trade statistical review 2020. WTO Report No. 2020/1, October 2020. Available from: https://www.wto-ilibrary.org/content/series/25186981

[10] Besedes, T., Prusa , T., 2010. The role of extensive and intensive margins and export growth. Journal of Development Economics. 96(2), 371–379. DOI: https://doi.org/10.1016/j.jdeveco.2010.08.013

[11] Hummels, D., Klenow, P., 2005. The variety and quality of a nations exports. American Economic Review. 95(3), 704–723. DOI: https://doi.org/10.1257/0002828054201396

[12] Liapis, P., 2009. Extensive Margins in Agriculture. OECD Food, Agriculture and Fisheries Papers. WP no. 17, 01 April 2009. DOI: https://doi.org/10.1787/224422031753

[13] Pacheco, A.A, Pierola, M., 2008. Patterns of export diversification in developing countries: Intensive and extensive margins. DOI: https://doi.org/10.1596/1813-9450-4473

[14] Armington, P.S., 1969. A theory of demand for products distinguishes by place of production. IMF Staff Papers. 16(1), 159–178. DOI: https://doi.org/10.2307/3866403

[15] Krugman, P., 1981. Intra industry specialization and gains from trade. Journal of Political Economy. 89(5), 959–973. Available from: https://www.journals.uchicago.edu/doi/abs/10.1086/261015

[16] Helpman, E., Melitz, M., Rubinstein, Y., 2008. Estimating trade flows: Trading partners and trading volumes. The Quarterly Journal of Economics. 123(2), 441–487. DOI: https://doi.org/10.1162/qjec.2008.123.2.441

[17] Cadot, O., Carrere, C., Strauss, K., 2011. Export diversification: What’s behind the hump?. The Review of Economics and Statistics. 93(2), 590–605. DOI: https://doi.org/10.1162/REST_a_00078

[18] Feenstra, R., Kee, H., 2007. Trade liberalization and export variety: A comparison of Mexico and China. The World Economy. 30(1), 5–21. DOI: https://doi.org/10.1111/j.1467-9701.2007.00869.x

[19] Kehoe, T., Ruhl , K., 2013. How important is the new goods margin in international trade?. Journal of Political Economy. 121(2), 358–392. Available from: https://www.journals.uchicago.edu/doi/abs/10.1086/670272

[20] Corsetti, G., Martin, P., Pesenti, P., 2007. Productivity, terms of trade and the home market effect. Journal of International Economics. 73, 99–127. DOI: https://doi.org/10.1016/j.jinteco.2006.08.005

[21] Galstyan, V., Lane , P., 2008. External imbalances and the extensive margin of trade. Economic Notes. 37(3), 241–257. DOI: https://doi.org/10.1111/j.1468-0300.2008.00200.x

[22] Evenett, S., Venables , J., Anthony, J., 2002. Export growth in developing countries: Market entry and bilateral trade flows. WP No. 2908, 10 June 2022. Available from: https://www.researchgate.net/publication/36386198

[23] Felbermayr , G., Kohler, W., 2006. Exploring the intensive and extensive margins of world trade. Review of World Economics. 142(4), 642–674. DOI: https://doi.org/10.1007/s10290-006-0087-3

[24] Eaton, J., Eslava, M., Kugler, M., et al., 2007. The margins of entry into export markets: Evidence from Colombia. Proceedings of the Globalization and the Organization of Firms and Markets; February 10–11, 2007; Munich, Germany. Available from: https://www.researchgate.net/publication/238494191_The_Margins_of_Entry_into_Export_Markets_Evidence_from_Colombia

[25] Amiti, M., Freund, C., 2010. The anatomy of China’s export growth. China’s growing role in world trade. University of Chicago Printing Press: Chicago, IL, USA. pp. 35–62. Available from: https://ssrn.com/abstract=1149131

[26] Veeramani, C., Aerath, L., Gupta, P., 2018. Intensive and extensive margins of exports: What can India learn from China?. The World Economy. 41(5), 1196–1222. DOI: https://doi.org/10.1111/twec.12592

[27] Kancs, A., 2007. Trade growth in a heterogeneous firm model: Evidence from South-Eastern Europe. The World Economy. 30(7), 1139–1169. DOI: https://doi.org/10.1111/j.1467-9701.2007.01035.x

[28] Anderson, M., 2007. Entry costs and adjustments on the extensive margin in export growth: An anlysis of how familiarity breeds exports. WP No. 81. Available from: https://RePEc:hhs:cesisp:008

[29] Chaney, T., 2008. Distorted gravity: The intensive and extensive margins of international trade. American Economic Review. 98(17), 07–21. DOI: https://doi.org/10.1257/aer.98.4.1707

[30] Evenett , S., Venables, J., 2002. Export growth in developing countries: Market entry and bilateral trade. World Bank Policy Research WP No. 2908. Available from: https://www.researchgate.net/publication/36386198

[31] Zahler, A., 2007. Decomposing world export growth and the relevance of new destinations. World Bank Policy Research. WP No. 4151. Available from: https://www.hks.harvard.edu/centers/cid/publications/fellow-graduate-student-working-papers

[32] Rahmouni, O., 2020. The impact of the geographical diversification of Saudi Exports: An intensive and extensive margin approach. Asian Economic and Financial Review. 10(6), 713–728. DOI: https://doi: 10.18488/JOURNAL.AEFR.2020.1010.1077.1087

[33] Zhang, X., Zhou Y., Geng X., et al., 2017. The intensive and extensive margins of China’s agricultural trade. Canadian Journal of Agricultural Economics. 65(3), 431–451. DOI: https://doi.org/10.1111/cjag.12122

[34] Ekrem, E., Saban, N., 2008. Gravity model of Turkish agricultural exports to the European Union. International Trade and Finance Association, International Trade and Finance Association Conference Papers. WP no. 21, Available from: https://www.researchgate.net/publication/46468975_Gravity_Model_of_Turkish_Agricultural_Exports_to_the_European_Union

[35] Singh, N., 2011. Indian agriculture: Before and after economic reforms. European Journal of Business and Management. 3(4), 292–298. Available from: https://www.researchgate.net/publication/343306960_Indian_Agriculture_Before_and_After_Economic_Reforms

[36] Sahni, P., 2014. Trends in India’s exports: A comparative study of pre and post reform period. IOSR Journal of Economics and Finance (IOSRJEF). 3(2), 5925. Available from: https://www.researchgate.net/publication/314369831_Trends_In_India's_Exports_A_Comparative_Study_Of_Pre_And_Post_Reform_Period

[37] Kumar, R., Singh, U., 2023. Performance of India’s foreign trade since 2015. 11, i18–i27. Available from: https://www.researchgate.net/publication/378479918_PERFORMANCE_OF_INDIA'S_FOREIGN_TRADE_SINCE_2015

[38] Dalmia A., Sharma, V., Rajgaria, S., et al., 2019. A case study on privatization of agriculture in the states of Odisha and Chhattisgarh. JETIR. 6(3), 543–556. Available from: https://www.jetir.org/papers/JETIR1903890.pdf

[39] Rehman, S., 2012. Privatization in Indian agriculture - An overview. SSRN Electronic Journal. DOI: https://doi.org/10.2139/ssrn.2387278

[40] Prahadeeswaran, M., Balaji, R., Senthilnathan, S., et al., 2022. Trends in export of major agricultural commodities and products from India. Asian Journal of Agricultural Extension, Economics and Sociology. 40(9), 367–373. DOI: https://doi.org/10.9734/ajaees/2022/v40i931016

[41] Kanaka, S., Chinadurai, M., 2012. A study of comparative advantage of Indian agricultural exports. Journal of Management Science. 2(1), 56–70.. DOI: https://doi.org/10.26524/JMS.2012.19

[42] Varma, P., 2012. An analysis of India’s bilateral intra-industry trade in agricultural products. International Journal of Economics and Business Research. 4(1–2), 83–95. DOI: https://doi.org/10.1504/IJEBR.2012.044246

[43] Saghir, A., Khan, W., 2015. India’s agricultural trade potential in post-WTO period. Agricultural Economics Research Review. 28, 93–100. DOI: https://doi.org/10.5958/0974-0279.2015.00025.7

[44] Bansal, R., 2021. WTO and India’s agricultural trade potential. Turkish Journal of Computer and Mathematics Education (TURCOMAT). 12(5), 1934–1942. DOI: https://doi.org/10.17762/TURCOMAT.V12I5.2274

[45] Elumalai, K., Kumar, A., 2022. Intensive and extensive margins of India’s agricultural trade: Implications for export diversification and development. Journal of Agribusiness in Developing and Emerging Economies. 12(4), 489–504. DOI: https://doi.org/10.1108/JADEE-04-2023-0095

[46] Tinbergen, J., 1966. Shaping the world economy: Suggestions for an international economic policy. Economic Journal. 76(301), 92–95. DOI: https://doi.org/10.1002/tie.5060050113

[47] Lawless, M., 2010. Deconstructing gravity: Trade costs and extensive and intensive margins. Canadian Journal of Economics. 43(4), 1149–1172. DOI: https://doi.org/10.1111/j.1540-5982.2010.01609.x

[48] Ngugi, T.W., 2015. Extensive and intensive margins: An analysis of Kenyan exports [Unpublished undergraduate project]. Nairobi, Kenya: Strathmore University. Available from: https://su-plus.strathmore.edu/handle/11071/5034

[49] Veeramani, C., Saini, G., 2011. Impact of ASEAN-India preferential trade Agreement on plantation commodities: A simulation analysis. Economic and Political Weekly. 46(10), 83–92. Available from: https://www.epw.in/journal/2011/10/special-articles/impact-asean-india-preferential-trade-agreement-plantation

[50] Birthal, P., Roy, D., Negi, D., 2015. Assessing the impact of crop diversification on farm poverty in India. World Development, Elsevier. 72(C), 70–92. Available from: https://www.72. 10.1016/j.worlddev.2015.02.015

[51] Jaffee, S., Henson, S., 2004. Standards and agro-food exports from developing countries: Rebalancing the debate. World Bank Policy Research. WP no. 3348, June 2004. Available from: https://www.researchgate.net/publication/23722950_Standards_and_Agro-Food_Exports_from_Developing_Countries_Rebalancing_the_Debate

[52] Narayan, S., Bhattacharya, P., 2019. Relative export competitiveness of agricultural commodities and its determinants: Some evidence from India. World Development, Elsevier. 117(C), 29–47. DOI: https://doi.org/10.1016/j.worlddev.2018.12.013

[53] Reardon, T., Minten, B., 2011. Surprised by supermarkets: Diffusion of modern food retail in India. Journal of Agribusiness in Developing and Emerging Economies. 1(2), 134–161. Available from: https://www.researchgate.net/publication/235272245_Surprised_by_supermarkets_Diffusion_of_modern_food_retail_in_India

[54] Kumar, D., Kalita, P., 2017. Reducing post harvest losses during storage of grain crops to strengthen food security in developing countries. Foods. 6(1), 8. DOI: https://doi.org/10.3390/foods6010008

[55] Kumar, S., Gupta, S., 2015. Crop Diversification towards High-value Crops in India: A State Level Empirical Analysis. Agricultural Economics Research Review. 28, 339. DOI: https://doi.org/10.5958/0974-0279.2016.00012.4.

[56] Roy, D., Thorat, A., 2008. Success in high value horticultural export markets for the small farmers: The case of Mahagrapes in India. World Development. 36(10), 1874–1890. Available from: https://www.researchgate.net/publication/23691157_Success_in_High_Value_Horticultural_Export_Markets_for_the_Small_Farmers_The_Case_of_Mahagrapes_in_India

[57] Renjini, V., Kar, A., Jha, G., et al., 2017. Agricultural trade potential between India and ASEAN: An application of gravity model. Agricultural Economics Research Review. 30, 105. DOI: https://doi.org/10.5958/0974-0279.2017.00009.X.

[58] Eyhorn, F., Ramakrishnan, M., Mäder, P., 2007. The viability of cotton-based organic farming systems in India. International Journal of Agricultural Sustainability. 5(1), 25–38. Available from: https://www.researchgate.net/publication/28684817_The_viability_of_cotton-based_organic_farming_systems_in_India

[59] Gulati, A., Pursell, G., 2008. Trade policies and Indian agriculture. Economic and Political Weekly. 43(52), 72–79.

[60] Mehta, R., 2009. India’s agricultural trade: Trends and prospects. Indian Journal of Agricultural Economics. 64(3), 417–435.

[61] Kumar, A., Sharma, P., 2013. Impact of climate variation on agricultural productivity and food security in rural India. Economics Discussion Papers. Paper no. 43. Available from: https://ideas.repec.org/p/zbw/ifwedp/201343.html