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Relative Responsiveness Of Trade Flows To A Change In Prices And Exchange Rate In Developing Countries

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  • Mohsen Bahmani-Oskooee

    ()
    (Center for Research on International Economics and Department of Economics, The University of Wisconsin-Milwaukee)

  • Orhan Kara

    (Department of Economics and Finance, West Chester University)

Abstract

In 1950 Orcutt conjectured that a country¡¯s trade flows could respond to a change in exchange rate quicker than they do to a change in relative prices. Previous research that supported Orcutt¡¯s hypothesis employed non-stationary data rendering the results to suffer from spurious regression problem. When we account for stationarity of the data by using cointegration and error-correction modeling, no strong evidence is found in support of the Orcutt¡¯s hypothesis. The findings in this paper for developing countries are similar to those found for developed countries.

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Bibliographic Info

Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

Volume (Year): 33 (2008)
Issue (Month): 1 (June)
Pages: 147-163

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Handle: RePEc:jed:journl:v:33:y:2008:i:1:p:147-163

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Keywords: Trade Flows; Relative Prices; Exchange Rate; Bounds Testing;

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