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Trade between Euro zone and Arab countries: a panel study

  • Nasri Harb

We construct an aggregate data panel to estimate price and income elasticities of the Arab countries imports from and exports to Euro zone. We study the nonstationarity of our series and verify the cointegration hypothesis among the variables using Pedroni's (2004) heterogeneous panel cointegration tests. The panel data circumvent the problem of short span sample and increase the power of the nonstationarity tests. Then, we estimate the idiosyncratic and panel cointegrating vectors using dynamic ordinary least squares (DOLS) (Kao and Chiang, 2000), fully modified ordinary least squares (FMOLS) (Phillips and Hansen, 1990) and group mean DOLS and FMOLS developed by Pedroni (2000, 2001). Our variables are shown to be cointegrated. Arab imports from Euro zone countries are income inelastic, but price elastic. Results of export function are not conclusive and depend on the used estimator.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 39 (2007)
Issue (Month): 16 ()
Pages: 2099-2107

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Handle: RePEc:taf:applec:v:39:y:2007:i:16:p:2099-2107
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  1. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  2. Mouawiya Al-Awad & Nasri Harb, 2005. "Financial development and economic growth in the Middle East," Applied Financial Economics, Taylor & Francis Journals, vol. 15(15), pages 1041-1051.
  3. Nasri Harb, 2003. "Money Demand Function: A heterogeneous Panel Application," Economics Working Papers 03/04-01, Department of Economics, College of Business and Economics, UAE University.
  4. Quah, D., 1993. "Exploiting Cross Section Variation for Unit Root Inference in Dynamic Data," Papers 549, Stockholm - International Economic Studies.
  5. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  6. Alkhatib Alkswani, Mamdouh & Al-Towaijari, Hamad A., 1999. "Cointegration, Error Correction and the Demand for Money in Saudi Arabia," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 52(3), pages 299-308.
  7. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation for Research in Economics, Yale University.
  8. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
  9. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, 2004. "Some cautions on the use of panel methods for integrated series of macroeconomic data," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 322-340, December.
  10. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
  11. Peter Pedroni, 2001. "Purchasing Power Parity Tests in Cointegrated Panels," Department of Economics Working Papers 2001-01, Department of Economics, Williams College.
  12. Carmen Reinhart, 1994. "Devaluation, Relative Prices, and International Trade; Evidence From Developing Countries," IMF Working Papers 94/140, International Monetary Fund.
  13. Banerjee, Anindya & Massimiliano Marcellino & Chiara Osbat, 2002. "Testing for PPP: Should We Use Panel Methods?," Royal Economic Society Annual Conference 2002 13, Royal Economic Society.
  14. 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.
  15. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
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