You are on page 1of 16

Time Series Analysis of Export Demand Equations: A Cross-Country Analysis

Author(s): Abdelhak S. Senhadji and Claudio E. Montenegro
Source: IMF Staff Papers, Vol. 46, No. 3 (Sep. - Dec., 1999), pp. 259-273
Published by: Palgrave Macmillan Journals on behalf of the International Monetary Fund
Stable URL: http://www.jstor.org/stable/3867643
Accessed: 25-09-2017 02:56 UTC

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
http://about.jstor.org/terms

International Monetary Fund, Palgrave Macmillan Journals are collaborating with JSTOR
to digitize, preserve and extend access to IMF Staff Papers

This content downloaded from 202.43.93.7 on Mon, 25 Sep 2017 02:56:51 UTC
All use subject to http://about.jstor.org/terms

259 This content downloaded from 202. Riedel (1984) challenges Lewis's conclusions by arguing that most developing countries face a downward export demand function and therefore could expand their exports. That engine. while Asia has both the highest income and price elastici- ties.93. both of which are crucial to capital formation. F41] | n many developing countries that have relatively limited access to international financial markets. exports do react to both the trade partners' income and to relative prices. IMF Stoff Papers Vol. F14. and Senhadji (1992) empirically show that Riedel's reasoning suffers from the fallacy of composition *Abdelhak Senhadji is an Economist at the IMF Institute and Claudio Montenegro is a consultant at the World Bank. [JEL: C22. However. Thus. MONTENEGROe The paper estimates export demand elasticities for a large number of developing and industrial countries. exports play an important role in the growth process by gen- erating the scarce foreign exchange necessary to finance imports of energy and investment goods. Lewis (1980) pointed out that the secular slowdown in industrial countries will inevitably reduce the speed of development in developing countries unless an alternative engine of growth is found. 25 Sep 2017 02:56:51 UTC All use subject to http://about. was trade among developing countries.org/terms .jstor. despite the slowdown in industrial coun- tries. In his Nobel prize lecture. 46. Sunil Sharma.5. Clavijo. he believed. The average long-run price and income elasticities are found to be approximately -1 and 1. SENHADJI and CLAUDIO E. by engaging in price competition. using time-series techniques that account for the nonsta- tionarity in the data. The price and income elasticity estimates have good statistical properties.7 on Mon.43. 3 (September/December 1999) ( 1999 International Monetary Fund Time Series Analysis of Export Demand Equations: A Cross-Country Analysis ABDELHAK S. and Raimundo Soto for very helpful comments. Faini. respectively. Africa faces the lowest income elas- ticities for its exports. No. E21. The authors thank Mohsin Khan.

and Hansen (1992). Consequently.) = 70 + yllog(x. In the model outlined in Senhadji and Montenegro (1998). export and import demand elasticities are critical parameters in the assessment of real exchange rate fluctuations on the trade balance. the model yields an export demand equation that is close to the st export demand function except that the correct activity variable is real G real exports of the trading partners.org/terms .) + 7310g(gdpxt*) + tb (1) where x. the more powerful exports will be as an engine of growth.jstor.93. most countries cannot reject the unit root three variables. rather than the trading partners' GDP. Phillips and Loretan (1991). 25 Sep 2017 02:56:51 UTC All use subject to http://about. More specifically. and Section II presents the results. The higher the income elasticity of the export demand.* is the activity defined as real GDP minus real exports of the home country's trading p Thus. The model predicts a cointegrating relationship between the I(1) As will be seen in the next section. Senhadji and Claudio E. A central element in this controversy is the size the price and income elasticities of developing countries' export demand. and thus the more successful will a real devaluation be in promoting export revenues.l The higher the price elasticity. l) + y210g(p. Pt is the export price of t country relative to the price of its competitors. 1. 1998). the more competitive is the international market for exports of the particular country. equation (I) will be estimated by Phillips's Modified estimator (FNI). four cases ar cussed depending on which of the three variables entering equation (1) co unit root. Concluding remarks are con- tained in Section III. see Phillips and Hansen (1990).7 on Mon. 2For details about the FM method. 1991) and Ostry and Rose (1992) find that a real devaluation has generally no significant impact on the trade balance. the export demand equation has the followin fonn: log (x. Using much larger samples than previous studies. see Senhadji and Montenegro. 1998) offer new evidence on this issue. and gdpx. which takes into account the nonstationarity in as well as potential endogeneity of the right-hand side variables and autoco of the error term. Montenegro argument in that a country alone can increase its market share through a real deval- uation but all countries cannot. 260 This content downloaded from 202.2 The presence of the lagged dependent variable in the tThe trade linkage between growth in industrial countries and growth in developing countr lyzed in detail in Goldstein and Khan (1982). The Model The model is derived from dynamic optimization (for details. is real exports of the home country. Section I briefly presents the export demand function and discusses the esti- mation strategy.43. Rose (1990. Similarly. Abdelhak S. while Marquez and McNeilly (1988) and Reinhart (1995) find that it does affect the trade balance. The recent literature is divided on how a real devaluation affects imports and exports. this paper and its companion paper on import demand elasticities (Senhadji.

5 One possibility is to use the weighting scheme for the activity variable. xt). 1961-93. 1965-93. Pesaran and Shin (forthcoming) show that the autoregressive spec- ification retains its usual properties even in a cointegration framework. The home country's exports compete not only with the domestic market of each trading partner. (2) . used in this paper. implies that the threat imposed by each country in the world to the home country's exports is measured by each country's share in world exports. a relative price should be included for all potential competitors of the home country exports.=1 where GDP. as well as the export price of the home country relative to the export price of each potential competitor. 1960-90.org/terms . Ecuador. researchers have constructed one relative price that extracts most of the information contained in all the relative prices mentioned above. 1061-63. and xi refers to the share of exports to country i in total exports. In gen- eral the data are available from 1960 to 1993. namely the export price of the home country relative to the domestic price of each importing country. The choice of a proxy for p. and x. Estimation Results The national account data come from the World Bank national accounts database. but because it is readily available. 3See Senhadji and Montenegro (1998) for a discussion.43.7 on Mon.93. = E Xt(GDP. TIME SERIES ANALYSIS OF EXPORT DEMAND EQUATIONS demand equation introduces some econometnc issues in the context of a cointegra- tion framework. Ideally. this strategy cannot be imple- mented econometrically because the equation will contain many highly correlated relative prices leading to the usual multicollinearity problem. The export unit value index has been retained not because it is necessarily the most appropri- ate one from a theoretical point of view. Tunisia. The world export unit value. but also with other potential suppliers to these markets. The weights are given by the share of the home country exports to each of its partners: N gdpx. for the construction of a composite price index that captures closely the potential competitive pressures facing the home country's exports. is not straightforward. 25 Sep 2017 02:56:51 UTC All use subject to http://about. are real GDP and real exports of trade partner i in year t.4 The variables in equation (1) will be proxied by the following: xt will be measured by total exports of goods and services in real terms.jstor.3 11. a disaggregated trade flow database. The data for the trade shares used to compute the activity variable were taken from United Nations Statistics Office's COMTRADE. Obviously. with some exceptions. 1965-93. The list of countries is given in Table 1. and Yugoslavia. however. 261 This content downloaded from 202. described in equation (2). pp. Instead. The sample includes 75 countries for which the required data are avail- able for a reasonable time span. sThe reduction of the number of prices included in the equation can be justified from a theoretical point of view by assuming that consumers' preferences are separable leading to multi-stage budgeting. The activity variable (gdpxt*) is computed as the weighted average of the trade parttlers' GDP minus exports. 4The following countries have a shorter data range: Cameroon. . See the discussion in Goldstein and Khan (1985).

74 1 34 Dominican Rep.31 1 34 Argentina -3.34 1 29 Canada -2.04 1 -1.42 2 -5.34* 1 34 Brazil -3.45 1 34 Benin -2.94 1 34 France 4.74 1 -2. -3.29 1 -2.11 1 34 Haiti -2.08 1 -1.75** 1 34 Denmark -3.06 1 -1.org/terms .24 1 34 China -1.93.95 2 -3.61 2 -2.09 1 -2.22 1 34 Finland -1.59 1 -2.64 2 -2.99 1 34 Austna 4.91 1 34 Mauritania -5.16 1 -2.27 1 -2.97 1 -1.31 1 34 Jamaica -2.65 1 -1.60 1 -3.88 1 -2.95* 1 34 Germany -2.63 1 -2.56 1 -2.88 1 34 Italy -2.7 on Mon.40** 1 34 Burundi -5.62 1 -2.18 1 -2. 25 Sep 2017 02:56:51 UTC All use subject to http://about.67 1 -2.33** 1 -2.73 1 -2.17 1 -2.37 1 -2.26 1 -1.75 1 -2.99 2 -3.43.26 1 -2.jstor.14 1 34 262 This content downloaded from 202.99* 1 -2.63 l 34 Chile -1.75 1 -4.088 1 -2.24 1 34 Colombia -1.08 1 -2.55 1 -1.75 1 34 India -0.57 1 -3.50 1 -2.60* 1 34 Malaysia -1.89 1 -2.21* 1 34 Guatemala -2.82 1 -1.52 1 -3.66 1 34 Malawi -2.30 1 -2.23 1 -2.95 1 -1. Augmented Dickey-Fuller Test for Variables Entering the Export Demand Equation Country x k p k gdpxs k nobs Algeria -5.18 1 -2.56 1 -2.15 1 -2.66 1 34 Israel -1.28 1 -1.69 1 4.17 1 -1.41** 1 -1.79 1 -2.37 1 -0.44 1 34 Bolivia -1.65 1 34 Kenya -1.55 1 -2. Montenegro Table 1.17 1 4. Senhadji and Claudio E.24 1 -3.59 1 -3.26 l 34 Cameroon -1.63 1 -1.44** 1 -2.57 1 -2.54 1 34 Australia -1.77 1 -1.97 1 34 Korea 4.71 1 -2.64 1 -3.47 1 4. Abdelhak S.25 1 -2.49 1 -1.86 1 34 Central African Republic -2.32 1 34 Japan -1.62 1 -1.46 1 -2.21 1 -1.35 1 -2.45 1 34 Greece -1.96 1 -2.00 1 34 Iceland -1.33 1 34 Belgium-Luxembourg -1.32 2 29 Egypt -2.16 1 -2.63 1 -2.56 1 34 Ecuador -1.97 1 -1.23 1 -3.31 1 34 Cote d'Ivoire -1.97 1 34 Malta -1.97 1 -1.89 1 -1.59 1 34 Costa Rica -1.83 1 -1.13 2 -2.46 1 34 Gambia -2.84 1 -2.94 2 -1.

88 1 -2.31 1 -2.jstor.08 1 34 Galre -2.25 1 -1. Significance levels at 1 percent and S percent are indicated by ** and *.72 1 34 Sweden -1.63 1 43 Pakistan -1. The optimal lag selected by the Schwarz Criterion in the ADF regression is given by k.6. respectively. x.82 1 -2.18 1 -1.24 1 -3.87 l -2. 25 Sep 2017 02:56:51 UTC All use subject to http://about. Critical values are a linear interpolation between the critical values for T = 25 and T = 50 given in Table B.45 1 -1.21 1 34 34 Paraguay -3.96 1 43 Netherlands -1.08** 1 Peru -2.31 2 -2.43.60 1 -0.68 1 34 Philippines -2.62 1 -2.92 2 -2.31 1 -2.40** 1 -1.21 1 43 43 Niger -2.06 1 Togo -1 .77 1 34 South Africa -2.42 1 -2.72 1 34 Yugoslavia -1.80 1 -2.88 1 -5.49 2 -2.53 1 34 Trinidad & Tobago -1.73 1 -1.00 1 -0.66 1 -2. in Hamilton (1994) (where Tis the sample size).35 1 -2.128* 1 -2.28 1 43 Morocco -3.77 1 -2. These three variables are tested for the existence of a unit root using the Augmented Dickey-Fuller (ADF) test.24 2 -4. and the real exchange rate.83 1 34 Tunisia -1.69 2 -1.49 1 -1.77 1 -2.44 1 United States -2.93.24 1 -3. gdpx*.74 1 -2.37 1 -2.65 l -0.7 on Mon.31 1 -2.99 1 -2.96 1 34 Turkey -1.99 1 -2.10 1 -3.14 1 -1.00 1 33 34 United Kingdom -1.56 1 -2.55 1 Somalia -2.03 1 34 Rwanda -6.01 1 -2.20 1 34 Portugal -2.82 1 -1.33 1 -1.75 1 34 34 Switzerland -1.org/terms .13 1 -1. TIME SERIES ANALYSIS OF EXPORT DEMAND EQUATIONS TabZe 1 (conc/uded) Country x k p k gdpx* k sbon Mauritius -2.59 1 -2.78 1 -2.28 1 -2.82* 1 43 Panama -2.51 2 -2.87 1 34 34 Senegal -4.69 1 Nigeria -2. case 4.40 1 -1.13 1 43 New Zealand -3.17* 1 43 43 Niger -2.49 1 -2.49 1 -2.42 1 -2.42 1 -2.16 1 -1.63 1 34 Pakistan -1.52 2 Mexico -1.83 1 -1.55 1 -2.30 3 -2.90 1 43 Norway -2.62 1 -1.07 1 -2. p.20 1 -1. a weighted (by the share of exports) average of the trade partners' GDP minus exports.80** 1 31 31 Note: Variables are as follows: real exports of goods and nonfactor services.19 1 -1 .60 1 -0.81 1 34 Uruguay -2.82* 1 34 Panama -2.97 1 -1. compllted as the ratio of the exports deflator to the world export unit values index.59 1 -2.14 1 -1.73 1 -6.07 1 -2.05 1 -2.06 1 -2.87 1 -2.53 l 30 Spain -1. The number of observations is given by nobs.02 3 -2.62 1 -1. 263 This content downloaded from 202.90 1 34 Norway -2.69 1 Nigeria -2.

jstor. and Senegal at 1 percent. The column labeled ser reports the standard error of the regression. New Zealand. only 6 out of the 75 countries reject the unit root at 5 percent or less (Algeria. The lag length. The long-run price and income elasticities are defined as the short-term price and income elasticities divided by one. with a sample average (over the first 53 coun- tries) of 4. the relative price of exports. and Zaire at 1 percent. The results are reported in Table 1. the coefficient estimates of the lagged dependent variable (log of exports of goods and nonfactor services in real terms). Mauritania. Table 2 reports the results for the 53 countries that show the correct sign for both the income and price elasticities. k. 25 Sep 2017 02:56:51 UTC All use subject to http://about. p. Burundi. column AC gives Durbin's autocorrelation test.02 (Peru) to A. The FM estimator corrects for both autocorrelation and simultaneity biases. Senhadji and Claudio E.43. The long-run price elasticities vary from {). the three variables in the export demand equation that is.21. These are given by Ep and Ey for the FM estimates. Another potential problem with the OLS estimates is the possible endogeneity Of Pt. Malawi. Montenegro Unit Root Test To determine the nature of the relationship described by equation (1). the coefficient of the log of the relative price). and a standard deviation of 0. gdpx* must be tested for the presence of a unit root. real exports of goods and ser- vices of the home country. Dominican Republic at 5 percent). the null of a unit root in p is rejected only for one country (Ecuador at 5 percent).0 (Peru) to 4. The unit-root hypothesis is tested using the Augmented-Dickey-Fuller (ADF) test. and gdpx* give. as for gdpx*t. For the OLS regressions. Bolivia. The export equation has been estimated for the 75 countries in the sample using both ordinary least squares (OLS) and FM. Even though Table 2 reports both the OLS and FM estimates of the export demand equation.72 (Turkey). and for the remaining 17 countries the unit-root hypothesis can be rejected for only one of the three variables. Export Demand Equations The results in Table 1 underscore the presence of nonstationarity in the data. For x. a median of 4. the unit root is rejected for 10 countries (Brazil. this paper focuses only on the FbI estimates. x. and the activity vari- able.17.93. The short-run price elasticities vary from 4. For most countries (53 of the 75) the unit-root hypothesis cannot be rejected for all three variables in the export demand equation. AR(1) autocorrelation is detected (at 10 percent or less) for 6 of the 53 countries. since both estima- tion methods yield relatively similar results. Paraguay.e.96 (Paraguay). the unit root hypoth- esis cannot be rejected at conventional significance levels. Gambia. Their variance and hence their t-statistics are computed using the delta method.org/terms . Abdelhak S. Greece. Cote d'Ivoire. especially considering the small sample size. respec- tively. the short-term price elasticity tYl (i. the coefficient of the log of gdpx*).. in the ADF regression is selected using the Schwarz Criterion (SIC). This may simply reflect the low power of the ADF test. Finally. Similarly. Finally. p.. Columns labeled x_l. Rwanda.e.7 on Mon.19. and the short-term income elasticity 72 (i. and Pakistan at 5 perD cent). These results show that for a large number of countries. minus the coeff1cient estimate of the lagged dependent variable. The sample average is 264 This content downloaded from 202.

73) where Ep and Ey are the long-run price and income elasticities. The columns Ep and Eyc give the long-run. the median is 1. N=53. Even with a relatively small sample size (thus low power).17 (Ecuador) to 4. (6) (8. unit- income elasticity at 10 percent or less. (3) (3.73) (0. and di (i = af.56)(-0.79-0.51daf + 0 50da5 .07. bias-corrected price and income elasticities.97. and 18 countries reject a long-run. TIME SERIES ANALYSIS OF EXPORT DEMAND EQUATIONS -1.57) Epl = 0.12) (4. The sample average is 1. Thus. Table 2 shows the results of the Phillips-Ouliaris (P-O) residual test for cointegration. R2 = . and also has higher income elasticities than the rest of the developing countries. Interestingly. The long-run income elastic- ities vary from 0.7 on Mon.41. a formal test for long run unit-price and unit-income elasticities is provided in columns labeled Ep = -1 and Ey = 1.0.07.01. and me) are the regional dummies.05) (1. (4) (9. and Middle East and North Africa (me)-and OLS regressions were run on regional dummies (t-statistics are given in parentheses): Epl = 0. a la.30.81) (-1.jstor. The sample average is 0. the median is 4.15 (Finland).22dme.65dla-0.51) Ey = 1. Since unit-price and unit-income elasticities are widely used as benchmark values. and the standard deviation is 0. Estimates of price and income elasticities are meaningful only if the I(1) vari- ables are cointegrated.05) (2.00. Exports are much more responsive to relative prices in the long run than in the short run.org/terms . the bias is negligible when the relative price and the activity variable are either exogenous or weakly endogenous.04.0.74 .38) (1. To test whether these elasticities differ significantly across geographical regions.79-0. The correction is generally small. the median is 0. The short-run income elasticities vary from 0. and zero otherwise. This test uses exact critical values of the t-statistic computed by Monte Carlo methods. respectively.93. Asia (as). N = 53. the null of non-cointegration is rejected for 51 (at 1 percent in most cases) of the 53 countries. The dummy dldc takes a value equal to one for developing countries.43.42dldcs R2 = . Twenty of the 53 coun- tries reject a long-run.74-0. unit-price elasticity. 25 Sep 2017 02:56:51 UTC All use subject to http://about.39da5 .02 (Ecuador) to 1. and zero otherwise.98) (-2.76. R2 = . exports respond signifi- cantly more to both relative prices and income in the long run than in the short run.0.37dla .35dldc.26) Ey = 1.33. R2=.0.31. N= 53. The latter take a value equal to one if a country belongs to the region.34 (Korea).48.67dme. Asia has significantly higher price elasticities than both industrial and developing countries. the 53 countries in the sample were classified in five regions Africa (ah.00)(-1. and the standard deviation is 0. the average short-run income elasticity is significantly less than 1. The fit as measured by R2 is good.02daf + 1. Thus. N= 53.85. as is the case for most coun- tries. (5) (344) (1. As discussed in Senhadji and Montenegro (1998). 562 This content downloaded from 202. and the standard deviation is 0. Latin America (la).

78 -0.42 Argentina 0.32 -2.72 2.04 -0.18 0.05 0.46 0.21 0. Fmland 0.02 0.01 0.96 4.67 -0.99 4.40 -0.06 3.93 5.11 0.96 8.77 -0.00 France 0.99 10.56 1.22 0.55 Cote d'Ivoire 0.34 -4.11 0.08 1.13 -0.51 0.21 4.25 0.64 1.08 0.15 -2.32 0.96 -2.13 1.11 0.09 0.56 2.93.94 Guatemala 0.05 3.99 3.OS 0.49 0.70 Austria 0.73 -0.48 0.98 -0.41 4.07 -2.00 10.19 -0.71 -0.96 4.26 0.05 0.20 -0.03 I.37 Chile 0.38 -0.58 0.15 0.06 266 This content downloaded from 202.22 0.90 0.72 -0.99 10.jstor.28 -0.53 0.06 0.57 0.09 0.40 0.69 -0.99 -0.64 -0.40 3.09 0.org/terms .43.13 0.94 0.72 -0.31 1.97 8.04 1.63 Australia 0.14 0.86 0.05 0.14 0.07 0.33 -0.48 Ecuador 0.94 11.74 0.34 .21 China 0.46 -0.09 0.07 0.08 0.42 3.26 0.30 0.94 0.80 2.17 Gambia 0.08 0.20 0.84 -2.76 -0.37 0.96 -O.21 -0.46 0.43 0.7 on Mon.03 1.16 Dominican Republic 0. Export Demand Equations Ordinary Least Squares (OLS) estimates Country x-1 p gdpx* AC ser R2 Algeria 0.99 6.89 2.14 0.69 -0.30 4.S0 2.54 Egypt 0.18 0.55 Benin 0.19 0.96 -1.24 0.11 0.50 Denmark 0.46 Cameroon 0.76 Burundi 0. Senhudji and Claudio E.54 0.76 -5.78 0.42 0.02 0.81 -0.41 2.18 0.98 6.09 2.38 -0.73 1.11 Haiti 0.34 2.57 -1. Abdelhak S.88 0.93 1.84 5.04 -0.25 0.03 1.47 0.37 0.01 0.29 0.12 O.57 0.26 -2.53 0.93 0.09 0.07 -0.44 -4.75 4.94 3.00 9.10 0.95 2.97 -0.62 0.12 0.02 652 -1.01 0.16 0.24 0.16 0.37 0.31 1.04 0.55 -0.79 0.07 -1.14 0. 25 Sep 2017 02:56:51 UTC All use subject to http://about.33 0.46 Colombia 0.85 -0.05 6.20 1.10 0.78 -0.39 2. Montenegro Table 2.91 -1.85 2.00 9.08 0.31 0.55 -1.36 Greece 0.07 -3.82 -0.09 0.07 0.44 -1.04 0.

09 -1.02 -2.26 7.93.22a 0.11 .52 1.16 0.38 34 10.31 a 0.81 0.16 1.11 _1.10 0.55 6.91 -3.31 -1.15 2.0.03 0.33 -2.14 0 95 _4 34b _0.34 -0.61 a 40.3.08 .24 1.49 -0.52 .00 0.01 3.96 .29 -3.32 1.03 0.12 0.03 -0.11 0.94 2.org/terms .85 b 9 17a 34 11.04 C 7.61 a 5.90 -0.00 .3.89 2.0.07 0.31 -1.19 0.07 0.5.85 1.83 .=1 nobs 0.26b 0.5 11 a 6.43 1.64 -1.62 a 30.86 -0.98 .16 a 0.17 0.6.28 -0.98 0.0.77 0.58 -2.1.42 a 2.36 1.09 0.60 .61 4 45 b 34 7.02 1 00 _4 44 b 2.64a 0.13 1.63C 267 This content downloaded from 202. Ep Ec ser R2 p O Ep=-l E.36 34 4.71 -2.28 0.87 -0.0.13 0.81 a 0.05 2.80 -0.22C 1.26 0.36 -5.13 34 1.48 -0.56 -0.0.97 .60 -2.96 a 0.0.84 -0.73 1.79 0.65 -0.81 1. 25 Sep 2017 02:56:51 UTC All use subject to http://about.28 -0.2.0.08 1.95 .4.20 -3.44 0.84 -0.29 34 11.88 34 7.86 .2.2.70 3.12 0 93 _5 73a 0.05 16.61 b .44 1.2.06 -1.41 2.15 2.70 2.59 3.75 34 4.97 .05 2.39 0.55 0.56 -0.83 -0.27 3.25 -0.56 -0.17 0.24 -3.44 -0.35 2.24 2.24 0.62b 0.32 a 0.80 2.45 -0.4.09 1.26 .27 -0.3.79 0.63b 0.02 0.25 0.83 C 34 2.jstor.59 -0.90 -0.56 .15 0.74 -0.36 -0.89 34 7.92 O.82 29 7.38 a 0.95 -0.63 0.80 a _0.04 0.14 7.36 34 9.28 -0.04 o gg _4 93 a _0.14b 0.93 -4. TIME SERIES ANALYSIS OF EXPORT DEMAND EQUATIONS Fully-Modified estimates x_l p gdpx* Ep E.87 0.15 0.12 .14 -1.70 .06 o gg _5.43 -0.1.76 -1.11 0.61 1.24 0.55 -1.09 0.03 1.70 1.32 1.58 1.05 0 94 _4 69a 0.08 b 22.08 1.93 1.02 2.90 .73 .51 0.82 2.91 .24 1.99 .OS 2.80 -2.08 0.S.08 -1.07 0.17 -2.33 29 8.02 2.42 -0.41 1.13 1.13b 0.18 0.11 0.24 1.46 0.2.43c 6.59 .93 1.76 0.55 0.19 -1.36 0.18 -1.10 .43.07 34 10.13.37 1.58 1.66 -0.29 -0.02 -3.41 a 12.30 0.00 b 0.96 _3 84c 1.6.04 0.20 2.00C 5.08 b 8.73 34 14.14 0.73 0.84 -0.84 -0.22 a 34 5.03 -0.80 -0.99a 3.99 .86b 3.29 0.82 -0.50 1.43 0.46 b 0.6.5.33 a 2.63 0.45a 1.15 -0.06 0.64 a 1.03 1.3.89 0.7 on Mon.72 34 4.67 0.24 0.12 -1.07 b 3.10 0.21 0.95 -2.34 1.49 -0.07 a 0.1.91 a 1.77 a 0.00 .80 -0.85 -0.58 -0.37 .51 0.19b 2.09 1.81 -0.77 -1.10 34 20.29 -0.21 0.89 .59 -0.13C-0.45 0.06 0.91 -3.52 -0.99a 34 11.26 0.68 1.48 0.96 a 5.44 1.49 0.85 -0.12 0.1.37 .58 a _0 34 21.93 .79 0.08 a 2.26 1.75 -0.84 0.43 34 11.47a _0.09 0.29 0.05 o gg _4 77a 0.75 21.87 .07 0.23 -0.9.91 a 0.55 -0.04 0.39 -1.11 0.08 -1.51 -0.16 1.40 0.31 -0.49 -0.71 .90 a 0.29 0.25a 4.21 0.77 .39 1.4.15 -l.74 0.41 -0.24b 0.33 -1.81 .4.43 -0.76 34 10.55 1.20 -1.17 2.25 1.

66 1.14 0.25 Q.78 -0.12 0.03 -2.7 on Mon.45 1.21 0.09 0.66 -0.43 Korea 0.60 1.03 0.04 1.21 0.64 0.59 3.12 0.24 0.20 0.72 4.06 1.96 -1.78 @.42 0.62 @.43.18 0.06 0.57 0.57 Mauritius 0.24 0.20 -1.27 0.00 0.86 3.17 0.62 -1.78 -0.14 Panama 0.32 0.96 7.57 4. Senhudji and Claudio E.04 0.26 -0.59 l.06 0.27 0.72 -0.02 2.56 1.72 0.61 -0.09 Peru 0.62 268 This content downloaded from 202.43 0.07 0.78 4.27 -0.01 -6.91 -2.42 0.99 10.60 0.13 -0.79 0.09 0.32 Philippines 0.17 Paraguay 0.16 Malta 0.21 0.05 0.97 6.00 4.46 0.58 3.85 6.64 0.11 0.63 0.93 2.50 4.20 -2.27 0.22 3.19 0.61 1.03 0.21 -0.39 5. Montenegro Table 2 (continued) Ordinary Least Squares (OLS) estimates Country x_l p gdpxt AC ser R2 Iceland 0.98 6.06 1.22 0.45 -0.23 0.84 1.16 1.47 4.03 -1.15 @.88 1.19 -0.34 -0.07 0.98 4.01 -1.78 -0.jstor.42 0.10 1.19 1. 25 Sep 2017 02:56:51 UTC All use subject to http://about.00 7.52 4.10 1.25 0.18 0.58 -0.62 -0.17 -2.95 -0.82 @.46 Norway 0.00 -1.29 0.38 1.80 0.87 3.39 {).67 Italy 0.57 -1.05 1.25 0.05 2.58 2.88 -0.99 5.80 Nigeria 0.08 0.06 New Zealand 0.01 0.59 -4.17 0.79 -1.19 4.15 0.16 -0.22 0.00 10.21 0.36 0.06 0.05 0.6S -0.17 -3.03 1.79 -0.93 Japan 0.org/terms .93.96 6.45 1.15 0.15 0.25 0.62 0.60 4.27 Kenya 0.04 0.00 8.61 -2.97 6.80 1.15 Portugal 0. Abdelhak S.99 7.37 Morocco 0.29 Niger 0.82 -0.18 0.53 -2.95 0.38 0.07 0.56 1.19 0.12 0.26 0.04 4.11 0.Sl Malawi 0.01 0.94 4.09 0.34 0.33 4.07 0.22 0.17 0.15 0.71 -2.90 5.65 0.64 1.42 0.59 0.25 0.24 4.00 4.25 0.11 Spain 0.07 0.11 0.19 Senegal 0.01 South Africa 0.59 -0.

93 .15 0.0.57 34 8.65 0.81 .04 1.0.0.43a _0.75 0.56C 0.47 -1.46 1.1.91 .0.15 a 10.84 -1.00 .05 0.91 .50 .90 .5S 4.50 0.28C 0.02 0.71 0.0.2.93.17 .62 0.94 .6.33 -2.14a 0.94 _7.08 0.65 .0.11 1.9.28 0.21 C 34 19.93a _0.92a 9 52a 0.85 34 3.00 .19 1.98 _4.34 .52 .83 0.0.36C 3.50a _0.96 _4.0.17 -0.02 0.0.0.03 1.43 a 0.1.07 0.17 .21 0.0.97 .1.0.2.75 0.0.80 .94 1.64 -0.4.68C 0.18 0.80 2.79 0.55 .0.21 -2.96 1.70a 5.41 3.04 0.21 a 0.06 0.65 0.01 a 269 This content downloaded from 202.5.33a _0.17 0.16 0.75a 13.54 b _2.13 0.0.70 34 4.39 0.51 7.18 2.30 .5.6.15 4.71 a 34 6.0.18 4.0.91 -0.0.83a 4.11 1.21 2.32 1.10.1 g c 10.24 .84 .0.27 .34c _2.64 .02a 0.06 0.05 .98 _4.0.58 0.36 0.31 -0.08C 34 8.32 .73 1.57 8.34 .1.20 .21 -1.47 .76 24.02 a _5.08 0.74 0.64 .37 .72 0.20 0.05 1.45 0.05 2.2.56 34 12.24 0.15 2.2.0.4.59b 3 93a 0.66 -4.85 .1.43.51 1.2.95a _1.22 2.25 .2.0.0.35 a 34 8.30 0.16 .0.54 0.47 1.46 .84 .87 .69 3.1.38 -0.1.22 1.50 0.21 0.67 3.59 .08 1.0.0.23 .08 .15 .2.65 1.14 0.19 0.67b 0.50 0.30a 3.2.81 3.33 2.78 .20 .10 0.80b 11.00 _9.43 1.2.2.81 .28 0.00 _4.06 0.88C 1.0.5.76 .1.05 0.3.20a 34 7.45 .29 3.69 .52 .27 .1.03 0.96 _4.73 .41 -1.11 .07 0.45 1.2.63 a 0.42a .31 0.99 _7.64 -0.51 0.04 .17 34 9.66 .91 .80b 9.91 . 25 Sep 2017 02:56:51 UTC All use subject to http://about.0.76a 1 1.02 0.96 0.22 .0.30b 4.jstor.60 4.43a 34 13.49a .44 34 10.2.1.90 .17 0.97 .62b 7.67 .06 0.2.42 34 8.27 2.12 .20 0.03 1.29 0.95b 0.34 6.12 .0.17 .84 .64 a 2.1.24 1.42 .6.1.13 2.2.89 a 0.82 1.40 .6.65 .1.46 .03 .56 34 10.70 .09 .24 -1.19 2.00 0.98 .75a _2.10 1.93 .26 .0.00 _9.86 .50 1.49 .25 0.0.16 34 9.78 a 0.48 2.70 .0.63 .75a 0.45 5.94 1.94 .1.71 .67 3.84 .80 0.33 0.64 .70 5.47 0.6.08 .36 0.58a 34 10.71 .12 0.0.12.80 .75 0.06a 3.0.17 0.28 0.41 34 9.6.85 .96 2.52 .05 0.33 a 0.0.0.06 .25 0.0.1.0.41 a _0.20 .03 -0.27 2.39 _3.06 0.93 1.04 0.49 0.42 0.0.38 .22 34 7.60 -1.O.33 0.47 34 9.25 0.28 0.58 .89 .0.03 1.80 0.1.0.0.07 .85a 0.02 0.1.7 on Mon.05 0.19 .65 .74a _0.89 1.01 a 1.org/terms .04 0. TIME SERIES ANALYSIS OF EXPORT DEMAND EQUATIONS Fully-Modified estimates x_} p gdpx* Ep Ey Ep Ey ser R2 P O Ep=-l Ey=l nobs 0.4.12 a 4.41 .74a 34 6.53 .32 0.11 0.1.17 4.0.11 .0.64 .66 a 0.15 0.1.12 0.1.99 _9.51 0.92 3.1.74 2.78 0.04 0.79 .46 1.33 2.43 1.7.82 34 8.50 0.0.50 0.52 1.14 2.82 18.2.47 0.92 1.0.81 .44 0.06 .13 0.39 .0.93 .59 b _1.0.3.49 .

Eys Ep = -1.48 0. cSignificant at 10 percent.00 5.28 0.67 1.68 1.27 2.93.33 0.82 @.84 -2.67 4.02 1.69 0.09 0.53 Stdev 0.jstor.47 4. and Ey = 1.48 0.92 4.98 10.12 4.27 0.18 0. the columns labeled Ep = -1 and E.07 0.17 0.15 0. Montenegro Table 2 (concluded) Ordinary Least Squares (OLS) estimates Country x l p gdpx* AC ser R2 Sweden 0.19 -2.84.41 -1.07 0.58 @.17 1.19 0. For each country.99 8.99 5. AC.42 6.04 Togo 0.61 0.32 aSignificant at 1 percent.64.20 2.59 4.01 -1. Note: The dependent variable lagged dependent variable. x_l.31 -0. respectively. The following statistics are also provided: Durbin's test for autocorrelation.26 0.47 Turkey 0.21 0.16.84 Switzerland 0.42 2.91 Tunisia 0. nobs.33 2.20 0.org/terms .66 4.05 Max 0.50 1.34 0.72 Mean 0. and 1 percent are.59 Median 0.55 -0.16 0.14 0.22 0.29 0.10 0. 270 This content downloaded from 202.09 0.62 -1.54 Zaire 0.63 4.7 on Mon.64 0.26 3.69 0. Abdelhak S. and 4.14 0. The asymptotic critical values for the Phillips-Ouliaris test at 10 per- centw S percent.88 3.45 -3. R2. the estimated coefficients and their t-statistic (below the coefficient estimates) are provided.13 0. A.10 0. respectively.96 1.12 1.69 Trinidad and Tobago 0.59 -2.59 -0.91 3.15 0.20 -1. Finally.79 @.24 @. Cointegration between the three variables in the export demand equation is tested using the Phillips-Ouliaris residual test given in column P-O.86 Uruguay 0.35 Min 0. Senhudji and Claudio E. 1998).43.03 1. bSignificant at 5 percent.70 -2.14 0. ser.58 0.21 4.76 0.23 0.03 0. standard error of the regression.19 0.61 4.88 4.04 -0.58 -4. = 1 report the two-tailed tesst for unit- price and unit-income elasticities.97 5.15 0. 25 Sep 2017 02:56:51 UTC All use subject to http://about.97 3.91 0. unit value index.05 0.00 2.90 3.21 1.03 1.84 0.88 0.31 0. 1998) are used to compute the significance level of Ep.57 @. Exact critical values (from Table 8 in Senhadji and Montenegro.09 0.91 -2.01 1. and the weigh demand equation is estimated u and income elasticities are give corrected for bias (see Table 4 in Senhadji and Montenegro.24 2. and the number of observations for each country.17 United States 0.22 0.13 0.15 4.50 4.58 0.21 0.67 @. -3.78 Yugoslavia 0.45 United Kingdom 0.00 7.

15 -0.88 -0.17 0.38 O.32 -0.2. Ep Ec ser R2 p O Ep=-l Ey=l nobs 0.05 -0.72a _1.43 -0.59 0.78 -0.15 -1.1 0.84 -3.73 1.20 b 5.74 0.17 0.96 .93 -0.43.org/terms .2.06 0.04 -0.02 4.05 0.85 1.19 0.86a 34 9.93.90 _4 57b 5 08a {).26 -1.52 b 39.06 -4.17 0.30 1.05 1.30 .5.29 .35 -3. TIME SERIES ANALYSIS OF EXPORT DEMAND EQUATIONS Fully-Modified estimates x-l p gdpx* Ep E.75 -0.34 1.16 0 05 0 97 4 03 a 7.79 0.41 a 0.53 0.54 -0.79 -0.41 1.05 0.98 .96 -0.91 2.00 .97 -5.17 -0.36 -2.10 a 0.00 1.17 1.21 0.81 a 0.72 -0.07 54.2.45 4.58 0.31 1.04 9.22 0.48 b 13 0.5.92 a _1.55 4.29 7 64 a 0.78 2.47 -1.51 -5.17 -5.34 -0.25 0.48 -0.41 -1.42 0.55 0.09 0.80 3.60 -1.84 -2.1 0.19 0.S1 0.99 -3.97 0.92 a 34 4.21 -0.27 -0.07 a 15.77 2.18 1.22 a 0.72 0.41 a 4.62 0.37 0.0.29 C 14.29 1.37 0.33 1.53 -0.37 -0.10 0.38 0.12 0.53 -0.10 0.39 1.23 5.17 0.30 -0.00 .33 1.74a 0.36 4.6.36 0.2.05 4.15 0.22 0.49a 1.00a 0.55 a 13 0.13a 9.03 0.24 a 1 .58 -0.19 6.10 0.69 -0.39 0.32 34 15.20 .30 .4.4.13 a 8.02 4.89 .96 O.52 -0.62 a 34 6.02 .78 1.23 0.28 -2.10 0.09 0.84 -0.31 271 This content downloaded from 202.00 .69 1.34 -0.1.71 a 6.jstor.04 0.58 4.37 2.34 5.93 43 0.42 1.92 0.77 0.72 0.65 -0.6.98 -0.81 C 34 2.24 43 0.93 .02 1.1.84 0. 25 Sep 2017 02:56:51 UTC All use subject to http://about.96 0.78 -0.87 9.7 on Mon.77 92.98 b 2.66 -0.42 -0.68 1.50b 33 8.42 0.16 0.16 34 5.35 1.27 -0.43 -0.40a 9.38 0.6.54 b 22..65 .80 -4.68 -0.24 -0.5.96 0.39 -0.13 b 3.02 -4.05 0.02 1.59 -1.58 .82 -0.03 1.04 0.31 0.99 .83C .94 a 1.52 -0.02 1.38 -2.59 0.00 _9.32 b 0 33 0.2.27 0.30 a 12.

93. and for 35 countries the unit-income elasticity can- not be rejected. A comparison with Reinhart (1995).04daf-0.S.28) (-3. R2=. and for Africa in particular. Developing countries also show lower price elasticities than industrial countries. 272 This content downloaded from 202. exports do significantly react to both movements in the activity variable and the relative price.62dme. (8) (24.90. in most cases.14 in this paper (where the mean is over the 37 developing countries in the sample).1. These differences may simply reflect the difference in the periods of analysis and sample sizes. have significantly lower income elasticities than industrial countries.43. The long-run price and income elasticities generally have the expected sign and. lower price elasticities than industrial countries. Asian countries have significantly higher price elasticities 6All the variables in the equations have been weighted by the inverse of the standard error of the cor- responding elasticity. Her mean estimate (over the 10 developing countries showing the right sign) is 4.69) While developing countries' income elasticities are lower. while the long-run income elasticities are on average close to 1. who uses a similar methodology. in general. her average income elasticity is 1. Conclusion The paper provides income and price elasticities of the export demand function for 53 industrial and developing countries. are statistically significant. Thirty-nine countries have point estimates of long-run income elas- ticity that are larger than one.71)(4. The average price elasticity is close to zero in the short run but reaches about one in the long run. 25 Sep 2017 02:56:51 UTC All use subject to http://about.83 .78dldc R2 = .99) (-1. Abdelhak S. Thus. they remain larger than one. Senhadji and Claudio E. the lower income elasticities for developing countries in general.32 in this paper.77)(-6. 111. A similar pattern holds for income elasticities in that exports react relatively slowly to changes in trade partners' income. growth in their partner countries will translate into growth of at least the same magnitude of their exports.44.83. Twenty-two of the 53 countries in the sample have point estimates of long-run price elasticity larger than one. except Asia. (7) (25. while it is -1.40da5-0. It takes six years for the average price elasticity to achieve 90 percent of its long-run level. The short-run income elasticities are on average less then O. shows that her estimates of the pnce elasticities are significantly lower.jstor. N= 53. Firlally.org/terms .7 on Mon. Montenegro Developing countries. N=53. Conversely.99 compared to 1. are even more forcefully demon- strated by the following weighted least squares regressions:6 Ey = 1. though slowly.54dla-0.89.5. and for 33 countries the unit-price elasticity cannot be rejected. While developing countries show.0. Consequently.14) (-2.89) Ey = 1. estimated within a consistent framework and taking the possible nonstationarity in the data into account. Thus trade remains an important engine of growth for all developing countries.

B. Fernando Clavijo. 1995. 1992. 1994." Review of Economic Studies. pp. and Andrew Rose." in Centennial Volume of Ragner Fr ed. 1980. and Abdelhak Senhadji. "Estimating Long-run Economic Equilibria. Abdelhak. and International Trade. 865-82. pp. "Statistical Inference in Instrumental Va Regression with I(l) Processes. and Caryl McNeilly. forthcoming." Economic Journal. "Exchange Rates and the Trade Balance: Some Evidence from Developing Countries. 45 (June). Vol." in Handbook of International Economics. Morris. pp. Senhadji. "Income and Price Elasticities for Exports of Developing Countries. Vol. 57 (January). Vol. "The Slowing Down of the Engine of Growth. "Time Series Analysis." StaffPapers. Marquez. 30 (May). 30S14. 58 (May). Andrew. Carmen. pp. 236-268. M. Ostry. Vol.jstor. and Mico Loretan. faces the lowest income elasticities. ''Efficient Estimation and Testing of Cointegrating Vectors in the Presence of Deterministic Trends. Relative Prices." Journal of International Money and Finance. "Trade as the Engine of Growth in Developing Countries. Vol. Africa. 271-75. . and P. Strom." Review of Economic Studies. Riedel.J. Goldstein. and Claudio Montenegro. Asian countries bene- fit from higher income elasticities than the rest of the developing world.7 on Mon. Arthur. 12 (Washington: International Monetary Fund). Rose. Vol." StaffPapers. by Ronald Jones and Peter Kenen (Amsterdam: North-Holland)." Occasional Paper No. TIME SERIES ANALYSIS OF EXPORT DEMAND EQUATIONS than both industrial and developing countries.B. Hashem.org/terms . Hansen. References Faini. A. 555 64. Reinhart. 1998.43. l l (February). Peter C. ed. Vol. Furthermore. "Income and Price Effect in Foreign Trade. Vol. 9 Phillips. pp. 1992. pp. Jonathan. Lewis. Vol. 1991. and Bruce Hansen." American Economic Review. Jaime. "Role of Exchange Rates in a Popular Model of International Trade: Does the 'Marshall-Lerner' Condition Hold?" Journal of International Economics. Peter C. 1990. 70 (September). "Devaluation. Vol. "Time Series Estimation of Structural Import Demand Equations: A Cross-Country Analysis. "The Fallacy of Composition Argument: Is It Relevant for LDCs' Manufactures Exports?" European Economic Review." Review of Economics and Statistics. . 1990. "Time Series Analysis of Export Demand Equations: A Cross-Country Analysis. corrobo- rating the general view that trade has been a powerful engine of growth in the region. Phillips. "Effects of Slowdown in Industrial Countries on Growth in Non-Oil Developing Countries." Economic Letters. and Yongcheol Shin. Senhadji. 70 (February). N. James. 1992. Holly." (Princeton. Vol. Bruce. 1984.93. 1998. in contrast. Abdelhak. 36 (May). "An Empirical Evaluation of the Macroeconomic of Tariffs." Journal of Econometrics. 94 (March).: Princeton University Press). Revisited. pp. and Mohsin Khan. James. 53 (July-September). pp. Vol. Riccardo. 1985. 273 This content downloaded from 202. 290-312. 5S73.. pp. "An Autoregressive Distribute Modelling Approach to Cointegration Analysis. 1988. 63- Pesaran. 1991." IMF Working Paper 98/149 (Washington: International Monetary Fund). Hamilton. pp. 1982. 25 Sep 2017 02:56:51 UTC All use subject to http://about. pp. 87-121.. 407-36. 42 (June). 34 (November). Diamond (Cambridge: Cambridge University Press). pp. by S. 301-16.