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Estimating export demand equations in selected Asian countries

Saten Kumar (Department of Economics, Auckland University of Technology, Auckland, New Zealand)

Journal of Chinese Economic and Foreign Trade Studies

ISSN: 1754-4408

Article publication date: 8 February 2011

2852

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.

Keywords

Citation

Kumar, S. (2011), "Estimating export demand equations in selected Asian countries", Journal of Chinese Economic and Foreign Trade Studies, Vol. 4 No. 1, pp. 5-16. https://doi.org/10.1108/17544401111106770

Publisher

:

Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

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