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Estimating export demand equations in selected Asian countriess

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Author Info

  • Saten Kumar

Abstract

Purpose – The purpose of this paper is to utilize the new specification proposed by Rao and Singh to estimate export demand equations for Asian developing countries, viz. India, China, The Philippines, Indonesia, Singapore and Malaysia. In this specification of export demand, exchange rate is included in the relative price variable. Design/methodology/approach – The augmented Dicky-Fuller method is applied to test the time-series properties of the variables. The time-series techniques of Phillip-Hansen's fully modified ordinary least squares and Johansen's maximum likelihood are used with annual data from 1970 to 2007. The Granger causality test determines the causality direction between income, relative prices and exports. Findings – The paper confirms that there exists a long-run cointegrating relationship between real exports, real income of trading partners and relative prices. The long-run income elasticities range between 1 and 1.3 and the relative price elasticities range between -1 and -1.4. Our Granger causality results imply that in the long-run income and relative prices Granger cause exports in these countries. Research limitations/implications – Structural breaks and trade shock analysis were ignored. Practical implications – The results imply that exports should be treated as an engine of growth in the Asian developing countries and the export promotion policies such as subsidies, special credits and tax concessions should be encouraged. The relative price elasticities imply that exports are competitive in the international market and these countries have the option to devalue their currency to enhance export earnings. Although the real devaluation of the currencies will push import costs high, eventually this motivates the local firms to undertake alternative options, for instance, import substitution. Further, the gains resulting from the export growth policies will be attractive. Originality/value – The paper assesses the magnitudes of export elasticities with a specification that includes exchange rate in relative price variable.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Chinese Economic and Foreign Trade Studies.

Volume (Year): 4 (2011)
Issue (Month): 1 (February)
Pages: 5-16

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Handle: RePEc:eme:ceftpp:v:4:y:2011:i:1:p:5-16

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Related research

Keywords: Asia; Developing countries; Economic processes; Exports; Time series analysis;

References

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  1. Saten Kumar & Don J. Webber & Scott Fargher, 2009. "Wagner’s Law Revisited: Cointegration and Causality tests for New Zealand," Working Papers 0917, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  2. A. J. Abbott & G. De Vita, 2002. "Long-run price and income elasticities of demand for Hong Kong exports: a structural cointegrating VAR approach," Applied Economics, Taylor & Francis Journals, vol. 34(8), pages 1025-1032.
  3. David Greenaway & David Sapsford, . "What does Liberalisation do for Exports and Growth?," Working Papers ec4/94, Department of Economics, University of Lancaster.
  4. Kumar Saten, 2009. "Structural Breaks and Exports in the Philippines," Global Economy Journal, De Gruyter, vol. 9(2), pages 1-9, June.
  5. Aamer Abu-Qarn & Suleiman Abu-Bader, 2001. "The Validity of the ELG Hypothesis in the MENA Region: Cointegration and Error Correction Model Analysis," Working Papers 134, Ben-Gurion University of the Negev, Department of Economics.
  6. Kumar, Saten & Manoka, Billy, 2008. "Testing the Stability of Demand for Money in Tonga," MPRA Paper 19300, University Library of Munich, Germany.
  7. Rose, Andrew K., 1990. "Exchange rates and the trade balance : Some evidence from developing countries," Economics Letters, Elsevier, vol. 34(3), pages 271-275, November.
  8. Urvashi Dhawan & Bagala Biswal, 1999. "Re-examining export-led growth hypothesis: a multivariate cointegration analysis for India," Applied Economics, Taylor & Francis Journals, vol. 31(4), pages 525-530.
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  10. Singh, Rup & Kumar, Saten, 2007. "Application of the Alternative Techniques to Estimate Demand for Money in Developing Countries," MPRA Paper 19295, University Library of Munich, Germany.
  11. Ahmad, Jaleel & Kwan, Andy C. C., 1991. "Causality between exports and economic growth : Empirical evidence from Africa," Economics Letters, Elsevier, vol. 37(3), pages 243-248, November.
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  13. Kumar, Saten, 2009. "A Re-examination of Private Consumption in Fiji," MPRA Paper 18706, University Library of Munich, Germany.
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  16. Lewis, W Arthur, 1980. "The Slowing Down of the Engine of Growth," American Economic Review, American Economic Association, vol. 70(4), pages 555-64, September.
  17. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 99-125, January.
  18. Saten Kumar, 2009. "An empirical evaluation of export demand in China," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 2(2), pages 100-109, April.
  19. Mohsen Bahmani-Oskooee & Janardhanan Alse, 1994. "Short-Run versus Long-Run Effects of Devaluation: Error-Correction Modeling and Cointegration," Eastern Economic Journal, Eastern Economic Association, vol. 20(4), pages 453-464, Fall.
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  21. Saten Kumar, 2010. "Efficacy of Monetary Policy in Curtailing Consumption: Empirical Evidence from Fiji," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3), pages 60-68, August.
  22. Saten Kumar & Scott Fargher & Don J. Webber, 2009. "Testing the validity of the Feldstein-Horioka puzzle for Australia," Working Papers 0911, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
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  29. Anoruo, Emmanuel & Kumar, Saten & DiPietro, Bill, 2007. "A Cointegration Analysis of Investment Output Ratio in Bangladesh," MPRA Paper 19338, University Library of Munich, Germany.
  30. Bodman, Philip M, 1996. "On Export-Led Growth in Australia and Canada: Cointegration, Causality and Structural Stability," Australian Economic Papers, Wiley Blackwell, vol. 35(67), pages 282-99, December.
  31. Saten Kumar, 2007. "The Stability of Demand for Money in Bangladesh: Time Series Methods," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(2), pages 27-35, May.
  32. Nowak-Lehmann Felicitas, 2004. "Different approaches of modelling reaction lags: how do Chilean manufacturing exports react to movements of the real exchange rate?," Applied Economics, Taylor & Francis Journals, vol. 36(14), pages 1547-1560.
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Cited by:
  1. Verheyen, Florian, 2013. "Exchange rate nonlinearities in EMU exports to the US," Economic Modelling, Elsevier, vol. 32(C), pages 66-76.

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