The interplay of export supply and the real exchange rate. Evidence for Mercosur exports to the EU
AbstractThis paper applies a dynamic macroeconomic trade model to assess Mercosur-European Union trade. Looking at export supply of Mercosur countries (the four formal members plus Chile), the role of the real exchange rate, income and the income-absorption surplus or deficit are evaluated. Special emphasis is put on the reaction of exports with respect to changes of the real exchange rate. The model is tested for a sample of five countries (Argentina, Brazil, Chile, Paraguay and Uruguay) over the period of 1961-1996. A panel data analysis is used to disentangle the time invariant country-specific effects and to capture the relationships between the relevant variables over time. We find that the fixed effect model is to be preferred to the common effect model. The variables income and income-absorption surplus are found to be important determinants of trade flows. The real exchange rate has a positive and significant impact on export supply in the long-term, whereas current and past changes in the real exchange rate seem to play no role for current total export trade in the short-and medium-term. Having this latter time horizon, it could be shown that Mercosur´s total exports react extremely parsimoniously and slowly with respect to changes in the real exchange rate. This phenomenon could be due to the large share of agricultural and forestry products in Mercosur´s exports.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series International Trade with number 0309020.
Length: 28 pages
Date of creation: 19 Sep 2003
Date of revision:
Note: Type of Document - Acrobat PDF; pages: 28 ; figures: none
Contact details of provider:
Web page: http://184.108.40.206
export supply; exchange rates; dynamic panel analysis;
Find related papers by JEL classification:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Russell Davidson & James G. MacKinnon, 1999.
978, Queen's University, Department of Economics.
- T. W.Swan, 1960. "Economic Control In A Dependent Economy," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 51-66, 03.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D., 2003. "Augmented gravity model: An empirical application to Mercosur- European trade flows," International Trade 0309019, EconWPA.
- Lourdes Moreno, 1997. "The determinants of Spanish industrial exports to the European Union," Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 723-732.
- Muscatelli, Vito Antonio & Stevenson, Andrew A & Montagna, Catia, 1995. "Modeling Aggregate Manufactured Exports for Some Asian Newly Industrialized Economies," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 147-55, February.
- Faini, Ricardo, 1988.
"Export supply, capacity, and relative prices,"
Policy Research Working Paper Series
123, The World Bank.
- Newman, John L. & Lavy, Victor & de Vreyer, Philippe, 1995. "Export and output supply functions with endogenous domestic prices," Journal of International Economics, Elsevier, vol. 38(1-2), pages 119-141, February.
- Goldstein, Morris & Khan, Mohsin S, 1978. "The Supply and Demand for Exports: A Simultaneous Approach," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 275-86, May.
- Beenstock, Michael & Lavi, Yaakov & Ribon, Sigal, 1994. "The supply and demand for exports in Israel," Journal of Development Economics, Elsevier, vol. 44(2), pages 333-350, August.
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
- Davidson, Russell & MacKinnon, James G., 1989.
"Testing for Consistency using Artificial Regressions,"
Cambridge University Press, vol. 5(03), pages 363-384, December.
- Russell Davidson & James G. MacKinnon, 1987. "Testing for Consistency using Artificial Regressions," Working Papers 687, Queen's University, Department of Economics.
- W. E. G. Salter, 1959. "Internal And External Balance: The Role Op Price And Expenditure Effects," The Economic Record, The Economic Society of Australia, vol. 35(71), pages 226-238, 08.
- Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
- Khan, Mohsin S & Knight, Malcolm D, 1988. "Import Compression and Export Performance in Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 315-21, May.
- Rodgers, Yana van der Meulen, 1998. "Empirical investigation of one OPEC country's successful non-oil export performance," Journal of Development Economics, Elsevier, vol. 55(2), pages 399-420, April.
- Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.