An appraisal of India’s comparative advantage in information technology exports
| DOI | https://doi.org/10.1108/JCEFTS-08-2022-0051 |
| Published date | 10 January 2023 |
| Date | 10 January 2023 |
| Pages | 136-152 |
| Subject Matter | Economics,International economics |
| Author | Manzoor Hassan Malik,Suvvari Anandarao,Aehsan Ahmad Dar |
An appraisal of India’scomparative
advantage in information
technology exports
Manzoor Hassan Malik and Suvvari Anandarao
Department of Economics, School of Liberal Arts and Social Sciences,
SRM University –AP –Amaravati, Mangalagiri, India, and
Aehsan Ahmad Dar
Department of Psychology, School of Liberal Arts and Social Sciences,
SRM University –AP –Amaravati, Mangalagiri, India
Abstract
Purpose –The purpose of this study is to estimate revealed comparative advantage and normalized
revealed comparative advantage (NRCA)indices of India’s computer and information services (CIS) export
competitiveness with regard to information technology (IT) competing developing nations, such as China,
Philippines,Malaysia and Brazil.
Design/methodology/approach –Using annual data of total exports for CIS, transportation (TNS),
travel (TVL) and insurance (INS) services under service categories of the balance of payment, the present
study estimates the pattern of comparative advantage (CA) in India’s CIS exports with respect to IT
competing developingnations such as China, Philippines, Malaysia and Brazil from 2000to 2018. The choice
of the study period is determinedby the availability of consistent data on IT service exports of these nations.
The study also estimates the export position of CIS export in comparison to India’s traditionally strong
commercialservices export of TNS, TVL and INS during the study period.
Findings –Both the indices showed that India had a strong CA in CIS compared to the selected nations,
indicating India’s relative export performance to be stronger than that of China, Malaysia, Philippines and Brazil.
The cross-service index showed that India’s relative specialization level in CIS with respect to the world’saverage
specialization level was stronger than its relative specialization level in TNS, TVL and INS services. Furthermore,
The NRCA cross-nation index showed that India’sNRCA ind ex score has been declining since 2010 with respect
to these nations, which implied a decline in the competitiveness of CIS. On the otherhand ,NRCA has increased in
the case of Philippines, Malaysiaand Brazil for most of the period post-2010.
Research limitations/implications –IT is a dynamic area of economic activity,and when the pace of
change isso rapid, the relevance of individual factorscan change over time. The study period is alsolimited to
the availabledata.
Practical implications –The paper hasimplications for attaining sustainabilityin IT export growth. It is
suggestedthat policies are directed at enhancing the overall performanceof IT sector.
Originality/value –The noveltyof the present study lies in the estimation of India’scompetitiveness in IT
exports in relation to the group of reference countries. With its policy recommendations, this research is
helpingto shape the sustainability of the IT sector.
Keywords IT exports, Comparative advantage, Revealed comparative advantage,
Normalized revealed comparative advantage, Competitiveness
Paper type Research paper
The authors are thankful to Dr Javid Ahmad Dar, Department of Environmental Science, School of
Engineering and Sciences, SRM University –AP for corrections and constructive comments on the
manuscript.
JCEFTS
16,2
136
Journalof Chinese Economic and
ForeignTrade Studies
Vol.16 No. 2, 2023
pp. 136-152
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-08-2022-0051
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1754-4408.htm
1. Introduction
Before the new economic reforms of the 1990s, India had been defined as an “import-substituting
country par excellence”(Rodrik, 1996). External balance crises in 1991 led to the implementation of
ongoing liberalization, privation and globalization. These reforms settled the inbuilt bigotry against
the balance of payment and rectified the price distortions to a worthy proportionate in the country
via more openness of India’s economy. During 1991–2001, total exports increased by an annual
average growth rate of 13.6% as compared to the average growth rate of 6.8% during 1981–1991.
There was an enormous improvement in the overall balance of payment amid surplus in the
current account and a rising inflow of foreign capital in the capital account (Parida and Sahoo,
2007). Over the years, the percentage share of India in the world export pie has been rising by
building up new export avenues such as information technology (IT) software and services exports,
in addition to the traditional primary and textile exports in the global export market. The success of
software and service exports has transformed this export avenue into a source of economic growth
of the Indian economy. It is reflected by its rising shares in various macroeconomic parameters like
national income, employment, total exports and forex reserves. Eight important factors that led to
the success of new software exporting nations like India are as follows:
(1) government vision and policies, including funding and tax benefits (for IT software
and service exports succeeded because Indian government took active steps to
encourage the high-tech sector in general or the software industry in particular);
(2) human capital, including national orientation and traditions, quantity,
composition, language skills and managerial skills;
(3) quality of life (talented professionals tended to concentrate in desirable locations);
(4) wages (the differences in wage rates were striking and very tempting for managers
who were under cost pressures);
(5) linkages, which emerged between individuals, work groups, firms and nation due
to geographic, cultural, linguistic or ethnic connections;
(6) technological infrastructure –software firms require abundant, reliable and cheap
telephone and broadband data communication connections;
(7) capital sources for software firms (could be any combination of domestic and
foreign); and
(8) industry characteristics, including clustering effects, the number of firms, their
size, the associations which organize the industry’sfirms, the industry’s degree of
common vision and branding and the standards that the firms aspire (Carmel,
2003).
Among these factors, the abundant availability of IT professionals, cost incentives, language
skills, international linkages and an ability to cater to the intermediary value addition demands
of IT are a comparative advantage (CA) of the Indian IT industry. The country’s abundant IT
professionals have been absorbed by the software and services exports, enjoying some sort of
monopoly in supplying desired labor (Arora and Athreye, 2002).
The trade-in IT has become a key factor in the economic development of developing
countries. It has emergedas an interesting and crucial ingredient of growth for nationssuch
as India, China, Malaysia, Philippines and Brazil, amidst strong dominance of neoliberal
policies encouraged by the World Trade Organization. Over the last two decades, these
nations have been competing with oneanother in offering intermediary IT sector business,
working as business-to-business models in the global IT industry. These nations have
emerged as significant participants in the global IT markets because of their wide
Comparative
advantage
137
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