📈 economics

Empirical Investigation of Bilateral Trade through Multi-Index Intensity Analysis and Structural Break Modelling: The case of India and Singapore

This study analyzes the 1991–2024 bilateral trade dynamics between India and Singapore using intensity ratios and structural break modelling to demonstrate a progressive deepening of economic interdependence driven by policy reforms and global events, despite occasional fluctuations.

Original authors: Kiran Thokchom

Published 2026-07-07

📖 4 min read☕ Coffee break read

CC BY 4.0

Original authors: Kiran Thokchom

Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). ✨ This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer

Imagine two neighbors: India, a massive house with a huge family and a growing garden, and Singapore, a tiny, ultra-efficient apartment building right next door that acts as a bustling marketplace for the whole neighborhood.

For the last 30 years, these two have been trading goods back and forth. But instead of just counting how many boxes they exchanged, this study asks a deeper question: "How much does one neighbor actually rely on the other?"

Here is the story of their relationship, broken down simply.

1. The Three Ways to Measure "Reliance"

The researchers didn't just look at the total number of boxes traded. They used three specific "glasses" to see the relationship clearly:

The Export Glasses (EDR): If India sells 100 apples to the world, how many go to Singapore? (On average, about 3 out of 100).
The Import Glasses (IDR): If India buys 100 bananas from the world, how many come from Singapore? (About 2 out of 100).
The Total Reliance Glasses (BTDR): This combines both. It asks, "How important is Singapore to India's entire shopping list?" (About 2.7% of India's total trade).

The Big Picture: India is a big house with many neighbors, so Singapore is just one of many friends. However, Singapore is a small apartment building that trades with everyone, so India is a slightly more important friend to Singapore than Singapore is to India. Overall, they are getting closer, but it's not a "marriage of total dependence"—it's a strong, steady friendship.

2. The "Earthquake" Detector (Structural Breaks)

The most interesting part of the study is how the researchers looked for sudden changes. Imagine the trade relationship as a road. Sometimes the road is flat and smooth. Sometimes, there's a sudden pothole or a new bridge appears that changes the whole path.

The researchers used a special tool (called the Bai–Perron Test) to find exactly when the road changed direction. They found that the relationship didn't change slowly; it jumped at specific moments, like a staircase.

For India (The Big House):

The road changed twice:

2004: A big jump happened. This lines up with the signing of a major deal called CECA (a trade agreement). It was like building a new, wide highway between the two houses. Suddenly, trade levels jumped up.
2018: Another shift occurred. The road leveled off again, but this time, the speed of growth slowed down. It's like the highway was built, but now the traffic is just cruising steadily rather than speeding up.

For Singapore (The Apartment):

The road changed three times:

2002: A dip in the road.
2007: A sharp rise, followed by a change in direction.
2013: Another shift where the relationship stabilized.

These jumps weren't random. They happened right around big events like the 2008 Global Financial Crisis, the CECA agreement, and changes in how global supply chains work.

3. What the Numbers Tell Us

The study found that the relationship is dynamic, not static.

Before 2004: They were getting to know each other. Trade was steady but slow.
2004 to 2018: The "CECA Highway" opened. Trade levels shot up immediately (a big jump in the "intercept"), but the rate of growth slowed down. It's like when you buy a new car: you drive fast at first, but then you settle into a comfortable cruising speed.
After 2018: The relationship is deep, but the momentum has slowed. It's not that they stopped talking; it's that the "easy growth" phase is over, and now they are in a phase of maintaining what they have.

4. The Takeaway for Policymakers

The study suggests that you can't assume trade will just keep growing forever on its own.

For India: They need to make sure the "highway" (logistics, ports, and rules) stays smooth so they don't lose momentum.
For Singapore: They need to keep their "store" (exports) fresh and relevant to India's changing needs.
For Both: They should update their old "friendship rules" (the CECA agreement) to include modern things like digital trade and finance, just as they updated the rules for physical goods in the past.

Summary

Think of India and Singapore as two dancers. For 30 years, they've been dancing together. Sometimes they spin fast (during policy changes), sometimes they slow down (during global crises), and sometimes they change steps entirely.

This study didn't just count how many steps they took; it mapped out when they changed their rhythm. It proves that their trade relationship isn't a straight line going up; it's a series of jumps and plateaus, driven by big deals and global events. To keep dancing well in the future, they need to understand these rhythm changes and adjust their steps accordingly.

Technical Summary: Empirical Investigation of Bilateral Trade through Multi-Index Intensity Analysis and Structural Break Modelling

Problem Statement
Existing literature on the economic relationship between India and Singapore has largely relied on surface-level metrics such as total trade volumes, growth rates, and basic balance-of-trade figures. While these studies acknowledge the significance of the Comprehensive Economic Cooperation Agreement (CECA) and the 1991 liberalization of India, they often fail to systematically measure the degree of dependence between the two nations. A high volume of trade does not necessarily equate to high economic reliance if that trade constitutes a small fraction of a country's total global engagement. Furthermore, prior research has rarely applied structural break modelling to this specific bilateral context, leaving a gap in understanding whether key events (such as policy reforms or global crises) caused measurable, permanent shifts in trade dynamics or merely temporary fluctuations.

Methodology
The study employs a quantitative econometric framework analyzing annual bilateral trade data from 1991 to 2024, sourced from UN Comtrade via the World Integrated Trade Solution (WITS). The analysis is built on three specific dependence indices:

Export Dependence Ratio (EDR): The share of a country's total global exports directed to the partner.
Import Dependence Ratio (IDR): The share of a country's total global imports sourced from the partner.
Bilateral Trade Dependence Ratio (BTDR): The partner's weight in the country's total global trade (sum of exports and imports).

To detect non-linear shifts in these relationships, the study utilizes the Bai–Perron multiple structural break test. This method allows for the identification of multiple breakpoints in time-series data without pre-specifying the dates. The general model treats the BTDR as a time-series ( $Y_t$ ) subject to linear regressions with varying intercepts ( $\alpha_i$ ) and slope coefficients ( $\beta_i$ ) across different regimes defined by breakpoints ( $T_i$ ).

Following the identification of statistically significant breakpoints, the study incorporates dummy variables and interaction terms into a regression framework. This allows for the estimation of distinct intercepts and trend slopes for each regime, distinguishing between temporary shocks and substantive structural transformations.

Key Contributions

Systematic Dependence Measurement: The paper moves beyond aggregate trade volumes to quantify the relative importance of India and Singapore to each other's economies using EDR, IDR, and BTDR.
Application of Structural Break Modelling: It is among the first studies to apply the Bai–Perron test to the India–Singapore bilateral trade relationship, moving beyond the assumption of linear trends to identify specific turning points.
Regime-Specific Analysis: By combining dependence ratios with structural break detection, the study provides a granular view of how trade intensity evolves in discrete jumps rather than smooth trajectories, linking these shifts to specific historical events.

Results
Descriptive Statistics:

India: On average, India's exports to Singapore constitute 3.32% of its total exports, and imports from Singapore constitute 2.30% of total imports. The mean BTDR is 2.71%, indicating a moderate but fluctuating reliance.
Singapore: Singapore's exports to India average 2.53% of its total exports, and imports from India average 1.65%. The mean BTDR is 2.31%.
Asymmetry: The data reveals an asymmetry where India's trade orientation toward Singapore is relatively stronger than Singapore's toward India, though both remain moderate relative to their total global trade.

Structural Break Analysis (Bai–Perron Test):

India's BTDR: The test identifies two significant structural breaks at 2004 and 2018.
- 2004 Break: Corresponds with the negotiation and early implementation of CECA (2005). The regression shows a sharp increase in the intercept (level effect), indicating an immediate jump in trade intensity, though the subsequent slope coefficient turned negative, suggesting the initial momentum tapered off.
- 2018 Break: Coincides with global economic slowdowns and supply chain reconfigurations. The intercept rose again, but the slope became significantly negative, indicating a loss of dynamic growth momentum despite a higher baseline level of trade.
Singapore's BTDR: The test identifies three significant structural breaks at 2002, 2007, and 2013.
- 2002 Break: Marked a significant drop in the intercept (contraction) but a steeper, positive slope, suggesting heightened sensitivity to underlying drivers during a recovery phase.
- 2007 Break: Showed a sharp rebound in the intercept (recovery) but a reversal in the slope to negative, indicating a structural reorientation where previous drivers of trade dependency began to contribute negatively.
- 2013 Break: Indicated a stabilization phase with a positive but statistically insignificant intercept shift and a continued, albeit milder, negative slope.

Significance and Claims
The paper claims that the India–Singapore trade relationship is dynamic and non-linear, characterized by discrete regime shifts rather than a steady, predictable trend. The findings suggest that:

Policy Events Drive Structural Change: Major agreements like CECA and external shocks (e.g., the 2008 financial crisis, post-pandemic adjustments) act as catalysts for structural breaks, altering both the level and the trajectory of trade dependence.
Resilience vs. Momentum: While the bilateral relationship has deepened over the long term (evidenced by rising intercepts in later regimes), the momentum of growth has weakened in recent periods (evidenced by negative slope coefficients). The relationship appears resilient but no longer accelerating.
Asymmetry and Vulnerability: The differing patterns of dependence and structural breaks highlight vulnerabilities. India's trade intensity is more sensitive to its own policy reforms, while Singapore's reliance on India has shown more volatility in response to global supply chain shifts.

The study concludes that for policymakers, understanding these structural breaks is essential. It argues that future engagement requires targeted interventions—such as updating CECA to include digital trade and services—to counteract the observed loss of growth momentum and stabilize the trade relationship against external shocks.