Badri Narayanan G.

Indian textile and apparel exports contribute to around 25 per cent of the total Indian exports. In this paper, we examine the effects of currency appreciation and productivity on Indian textile and apparel exports, since these are crucial in this sector in the light of the phasing out of Multi Fibre
Arrangement (MFA) quotas by 2005. Based on a cointegration and causality analysis of data from 1960 to 20a0, the existence of cointegration among the exchange rate, export prices, exports, productivity, and imports of machinery, has been tested. These were found to be not cointegrated by
Johansen’ s Full Information Maximum Likelihood (FIML) test [1988]. However, cointegration was found to exist between textile exports and exchange rate, and also between textile exports and their prices, implying a long-run equilibrium relationship between textile exports and exchange rate, and also between textile exports and their prices. Granger t1981,Pp. 121-301 causality tests show that prices strongly Granger-cause textile exports, while there is a long-run causal adjustment between exports and exchange rale, Impulse response functions, and prediction error variance decomposition to indicate a role of productivity in influencing textile exports. The conclusion is that exchange rate plays a clearly vital role in textile exports, while the role of productivity is not so clearly established in this study, as no cointegration or causality was found between productivity and exports, though it does seem to have an impact on future exports.