STOCHASTIC MODELLING OF BALANCE OF PAYMENTS IN THE POST-LIBERALISED INDIAN ECONOMY

Abstract

This paper studies the determinants of Balance of payments (BOP) in post-liberalised Indian economy. The endogenous variables taken for the investigation are BOP, interest rate, gross fiscal deficit, foreign direct investment, crude oil price, exchange rate, external debt, growth rate and inflation from 1991 to 2022. VECM was applied for analysing these time series data. The findings of this study reveal that FDI and Growth rate have positive influence on BOP in the short-run. FDI, gross fiscal deficit, growth rate and inflation have positive impact on BOP in the long run whereas interest rate and crude oil price have negative influence on BOP in the long-run. Significant negative adjustment coefficients shows that Balance of Payments is mean reverting. The outcomes of this study will guide researchers and policymakers to formulate appropriate policies to manage India’s Balance of Payments.