India has recently signed a historic Trade and Economic Partnership Agreement (TEPA) agreement with the countries of the European Free Trade Association (EFTA). The EFTA countries include non-EU countries namely, Iceland, Liechtenstein, Norway and Switzerland. This Agreement precedes the much-discussed and much-awaited India-EU FTA (Free Trade Agreement) or even the India-UK FTA. This Agreement is the first instance, whereby India has finalized a trade deal with a European bloc. It also marks the first instance where EFTA countries have explicitly committed to an investment of USD 100 billion in India over the next 15 years thereby opening the gates to a million jobs for Indian youth.
This paper examines the relationship between trade with EFTA nations and India’s GDP by analysing historical data for the period 1995-2022. It employs the Autoregressive Distributed Lag Model (ARDL) and the Granger Causality Test to assess this relationship.
The paper concludes that there exists a causal relationship between exports to EFTA as well as imports from EFTA and India’s GDP in the short-run, though in the long run, only exports exhibit a causal relationship with imports as well as GDP.
Keywords: India-EFTA, Trade, TEPA, ARDL, GDP
