Does world investment demand determine U.S. exports?
An important but apparently neglected fact about U.S. exports is that export variation over time is dominated by variation in exports of capital goods and industrial supplies rather than consumer goods. This fact suggests that world investment demand rather than world consumption demand may be an important yet neglected determinant of U.S. exports. This paper documents a remarkably robust statistical relationship between U.S. exports and world investment demand, and shows that controlling for world investment changes other aspects of traditional export demand equations. To the extent that world investment behaves differently than world consumption, this finding may lead to a revision of current thinking about the ultimate determinants of U.S. exports and the mechanisms through which world economic shocks are transmitted to the U.S. economy.
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