Journal of Chinese Economic and Foreign Trade Studies

Emerald Article: Estimating export demand equations in selected Asian countries Saten Kumar

Article information:
To cite this document: Saten Kumar, (2011),"Estimating export demand equations in selected Asian countries", Journal of Chinese Economic and Foreign Trade Studies, Vol. 4 Iss: 1 pp. 5 - 16 Permanent link to this document: http://dx.doi.org/10.1108/17544401111106770 Downloaded on: 18-04-2012 References: This document contains references to 55 other documents To copy this document: permissions@emeraldinsight.com

Access to this document was granted through an Emerald subscription provided by For Authors: If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service. Information about how to choose which publication to write for and submission guidelines are available for all. Additional help for authors is available for Emerald subscribers. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.com With over forty years' experience, Emerald Group Publishing is a leading independent publisher of global research with impact in business, society, public policy and education. In total, Emerald publishes over 275 journals and more than 130 book series, as well as an extensive range of online products and services. Emerald is both COUNTER 3 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.
*Related content and download information correct at time of download.

The current issue and full text archive of this journal is available at www.emeraldinsight.com/1754-4408.htm

Estimating export demand equations in selected Asian countries

Saten Kumar
Department of Economics, Auckland University of Technology, Auckland, New Zealand
Abstract
Purpose The purpose of this paper is to utilize the new specication 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 specication 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-Hansens fully modied ordinary least squares and Johansens 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 conrms 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 21 and 21.4. 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 rms 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 specication that includes exchange rate in relative price variable. Keywords Developing countries, Asia, Exports, Time series analysis, Economic processes Paper type Research paper

Estimating export demand

1. Introduction According to Rao and Singh (2007), many empirical studies on export demand are biased because exchange rate is excluded in the relative price variable. It is well known that estimating the export demand equations allows us to obtain the relative price and income elasticities that have important implications on the export-led growth policies. The higher the income elasticity of the export demand, the more powerful exports will be in generating growth. The higher the price elasticity, exports will be more competitive in the international market and more successful will be a real devaluation to enhance export earnings. For more details, see Kumar (2009c, b) and Kumar (2008).
The author would like to thank B.B. Rao for useful comments on this paper. However, errors are his own responsibility.

Journal of Chinese Economic and Foreign Trade Studies Vol. 4 No. 1, 2011 pp. 5-16 q Emerald Group Publishing Limited 1754-4408 DOI 10.1108/17544401111106770

JCEFTS 4,1

Further, export demand estimates are important to analyze the real exchange rate uctuations on the trade balance. The Asian countries play a signicant role in the world market by raising foreign exchange reserves to nance imports and capital formation. A signicant study by Riedel (1984) showed that developing countries have high relative price elasticities. Lewis (1980) pointed out that trade in developing countries is an engine of growth. He argued that growth will be steady in developing countries even if developed countries face contraction. In the empirical literature on export demand, the most inuential work is Senhadji and Montenegro (1999). They used Phillips Hansens method to estimate export demand equations for developing and developed countries. They found that African countries face the lowest income elasticities for their exports, while Asian countries have the highest income and price elasticities. However, Senhadji and Montenegro did not include exchange rate in the relative price variable. Following Rao and Singh (2007), this could result in obtaining bias income and price elasticities. Studies that support the inclusion of exchange rate in the relative price variable are Kumar (2009c, b), Nowak-Lehmann (2004), Abbott and De Vista (2002) and Muscatelli et al. (1995). Marquez and McNeilly (1988) argue that both income and price elasticities are useful in the determination of trade ows for advanced and developing countries. However, Bahmani-Oskooee and Niroomand (1998) nd that this result is signicant only for developing countries. Further, Bahmani-Oskooee and Alse (1994), Rose (1990, 1991) and Ostry and Rose (1992) nd that a real devaluation has generally no signicant impact on the trade balance. Lately, Fan et al. (2004) utilized social accounting matrix (SAM) to examine the effects of real effective exchange rate changes on Renminbi (RMB) on the trade balance of China. Their results show that the SAM does not supply enough reasons to argue that the depreciation of the RMB by real effective exchange rate will improve the trade balance. They conclude that Marshall-Lerner condition does not apply on China. Arize (2001) nds that for Singapore economy, there is a long run and stable equilibrium relationship among exports and its determinants. Guisan and Cancelo (2002) estimated the export demand function considering the supply side determinants such as domestic gross domestic product, domestic private consumption and human capital in addition to foreign income and relative export price. Lately, Kumar (2009c) nds that there is a structural break in the export demand function of the Philippines and assert that there is a cointegrating relationship between real exports, real income and relative prices. In another study, Kumar (2009b) estimated export demand function for China and nd signicant long-run income and relative price elasticities. The export-led growth policies have played an important role in promoting exports and hence the output growth in the Asian countries. Many studies have tested the export-led growth hypothesis for various countries using alternative estimation techniques, and results vary considerably from country to country with some supportive and some opposing evidence[1]. Studies that are in favour of export-led growth hypothesis are Bahmani-Oskooee and Alse (1993), Kugler and Dridi (1993), Van den Berg and Schmidt (1994), Ahmad and Harnhirun (1995), Biswal and Dhawan (1998), Dhawan and Biswal (1999), Deme (2002), Keong et al. (2003), Petreski (2007), Bodman (2008) and Husein (2009). Alternatively, some studies nd limited evidence in favour of export-led growth hypothesis, for instance see, Ahmad and Kwan (1991), Bahmani-Oskooee et al. (1991), Hutchinson and Singh (1992), Dodaro (1993), Colombatto (1990), Henriques and Sadorsky (1996), Greenaway and Sapsford (1994) and Abu-Qarn and Abu-Bader (2004).

For a comprehensive survey on export-led growth hypothesis, see Bahmani-Oskooee et al. (2005) and Medina-Smith (2001). They conclude that most of the related studies are inconclusive at best. The aim of this paper is to utilize the new specication proposed by Rao and Singh (2007) to estimate export demand functions for Asian developing countries (India, China, Philippines, Indonesia, Singapore and Malaysia). Specically, the export demand equations are estimated with the Johansen maximum likelihood (JML) and Phillip Hansens fully modied ordinary least squares (FMOLS) techniques for the period 1970-2007. In addition, we use Granger causality to examine the direction of causality between exports, income and relative prices. Our paper is organized as follows: Sections 2 and 3 detail our specication and empirical results, respectively. Finally, conclusions are stated in Section 4. 2. Model specication Essentially, many studies estimate one of the following forms of export demand:   PD 1 1t lnX t b0 b1 lnY F b2 ln PF lnX t b0 b1 lnY F b2 lnE t 1t 2

Estimating export demand

where X is the total exports of goods and services deated by export price index, PD is domestic price of exports, PF is price level of trading partners, E is exchange rate measured as the price of foreign currency in domestic currency and YF is income of trading partners. Both the equations (1) and (2) are simple and in our view the relative price variable is not appropriately developed. When we estimated the above equations with FMOLS, we nd that the price elasticity is small in magnitude and insignicant for few of our selected countries[2]. This problem is highlighted by Rao and Singh (2007) that if relative price variable is not appropriately formulated, the price elasticity could be under-estimated (over-estimated) if devaluations (appreciations) dominate the sample. Therefore, following Rao and Singh (2007), we re-dene the export demand function as follows:   PD 3 1t lnX t b0 b1 lnY F b2 ln E PF Note that the relative price variable has three components, viz. PD, E and PF. We shall use this modied version (3) to estimate the export demand function and identify the causal relationships between the variables for a group of Asian countries. Microt 4.2 of Pesaran and Pesaran (1997) is used for estimation. We used annual data and the sample period is 1970-2007 for all countries. The denitions of variables and sources of data are in the Appendix. 3. Empirical results 3.1 The JML estimates We rst tested for the stationarity of the variables using augmented Dicky-Fuller tests (ADF). The computed ADF test statistics for the levels and rst differences of the variables are given in Table I. The ADF tests have been applied for both levels and their rst differences with an intercept and trend. The time trend is included because it is signicant in the levels and

JCEFTS 4,1
India Singapore

Lags [0,1,2] [1,1,0] [1,1,4] [2,0,4] [0,1,0] [1,1,2] [0,3,1] [3,1,1] [4,0,4] [1,2,2] [0,0,4] [4,1,2]

lnXt 2.364 (4.110) 3.124 (3.981) 3.268 (4.735) 1.763 (6.141) 2.785 (3.992) 1.679 (4.442)

Test statistics lnYF ln (PD/(E PF)) 2.233 (3.697) 1.161 (5.770) 3.134 (3.723) 3.236 (4.667) 3.484 (5.202) 0.522 (6.297) 0.743 (5.322) 2.023 (5.122) 3.051 (4.804) 2.784 (4.021) 1.840 (3.623) 2.049 (3.856)

95 percentage of CV 3.567 3.567 3.587 3.587 3.567 3.567

Philippines China Indonesia Malaysia

Table I. ADF unit root tests

Notes: Absolute value of test statistics and 95 percent critical values are reported; lag lengths for the variables are selected using AIC and SBC criteria; for example [0,1] indicates that lag 0 and 1 are signicant in 1st and 2nd variables, respectively; the test statistics for the rst differences of the variables are given in the parentheses

rst differences of the variables. According to the ADF test statistics, the unit root null for the level variables cannot be rejected at 5 percent level. Alternatively, the null that their rst differences have unit roots is clearly rejected. Hence, there is no point in applying more sophisticated unit root tests because, compared to the ADF test, alternative unit root tests like the generalized least squares ADF, Phillips Perron and the Elliott, Rothenburg and Stock tests have more power against the unit root null. The JML technique developed by Johansen (1988) is widely used in empirical studies[3]. The optimum lag lengths of the vector autoregressions were tested with a fourth-order model. We included a constant and trend term for all countries. The Akaike information criteria (AIC) and Schwartz Bayesian criteria (SBC) were used to select the lag length of the VAR and both indicated lag length of period 1 for India, Singapore, China and Malaysia, respectively. However, for Indonesia and Philippines the AIC and SBC indicated lag length of periods 2 and 3, respectively. We selected the unrestricted intercept and no trend option for Philippines and restricted intercept and no trend option for India and Indonesia. For Singapore, China and Malaysia, we selected no intercept and trend option. We use these options because only these gave us meaningful results for respective countries. Both the trace and eigenvalues rejected no cointegration at 95 percent but did not reject the null of one cointegrating vector. The details of trace and eigenvalues statistics for each country are provided in Table II. The implied cointegrating vectors for each countries normalized on ln X are given in Table III. The estimated income elasticities range between 1 and 1.3. Singapore and China have the highest income elasticities at around 1.3 while Philippines and Indonesia have around unit income elasticities. Malaysia and India have income elasticities at around 1.2. The relative price elasticities for all the countries are also signicant and plausible. Our near unit income elasticities imply that 1 percent increase in foreign trading partners income leads to between 1 and 1.3 percent increases in export demand. This implies that exports should be treated as an engine of growth in the Asian countries and therefore export promotion policies such as

Test statistic India r0 r# 1 Singapore r0 r# 1 Philippines r0 r# 1 China r0 r# 1 Indonesia r0 r# 1 Malaysia r0 r# 1 55.153 11.496 63.142 6.089 22.557 9.414 49.698 12.526 25.479 14.622 57.574 7.885

Eigenvalue 95 percent 22.040 15.870 17.680 11.030 21.120 14.880 17.680 13.030 22.040 15.870 17.680 11.030

90 percent 19.860 13.810 15.570 9.280 19.020 12.980 15.570 19.280 19.860 13.810 15.570 9.280

Test statistic 77.622 12.470 69.388 6.246 32.296 9.739 63.334 13.636 47.448 16.969 65.654 8.080

Trace 95 percent 34.870 20.180 24.050 12.360 31.540 17.860 24.050 14.360 34.870 20.180 24.050 12.360

90 percent 31.930 17.880 21.460 10.250 28.780 15.750 21.460 20.250 31.930 17.880 21.460 10.250

Estimating export demand

Note: r is the number of cointegrating vectors estimated with the JML procedure

Table II. JML cointegration tests 1970-2007

subsidies and tax concessions should be encouraged. The relative price elasticities mean that 1 percent increase in price leads to between 1 and 1.4 percent decrease in export demand. This implies that the exports provide a more competitive offering in the global market. 3.2 The FMOLS estimates In what follows, we report our estimates obtained with the FMOLS technique developed by Phillips and Hansen (1990)[4]. The cointegrating coefcients are estimated in levels of the variables that is, lnXt, lnYF and ln (PD/(E PF)). Unlike JML, we are unable to restrict the intercept term in the VAR. The Parzen lag window option was used to estimate the cointegrating equations for all countries. There is some exibility in selecting the lag lengths of the VAR window. Our approach is that we try with smaller lag lengths rst and increase the size with keeping a note on the estimated elasticities. We stop varying the lag lengths where there are no signicant changes in the implied coefcients. Therefore, the length of the lag windows was 2 for India, Singapore, Indonesia and Malaysia. For China and Philippines, the length was 4. The FMOLS long-run elasticities of export demand for respective countries are also given in Table III. It is noteworthy that there are no signicant differences in the estimated income and relative price elasticities when compared with the JML technique. The relative price elasticity of India is signicant at the 10 percent level. Thus, in all cases the income and relative price elasticities are signicant and plausible. 3.3 Granger causality The existence of cointegration implies Granger causality; however, it does not indicate the direction of causality. In order to assess the direction, we employ JML modeling.

10

JCEFTS 4,1

India Singapore Philippines China Indonesia Malaysia 1.236 1.288 0.957 1.296 1.007 1.203 1.176 1.252 1.030 1.233 1.025 1.126 2 1.356 2 1.373 2 1.305 2 1.307 2 1.122 2 1.059

Notes: Signicance at: *5 and * *10 percent levels, respectively; absolute t-ratios are below the estimated coefcients

Table III. Implied long run elasticities for exports 1970-2007 Intercept FMOLS JML FMOLS JML lnYF ln (PD/(E PF)) FMOLS 2 7.218 1.768 2.006 2.965 7.320 0.600 (2.17) * (3.19) * (3.55) * (6.24) * (4.96) * (4.10) * (3.18) * (2.92) * (3.97) * (8.58) * (2.91) * (5.39) * (6.36) * (4.26) * (8.46) * (11.05) * (2.03) * (4.85) * (3.80) * (3.20) * (1.96) * * (4.70) * (3.31) * (2.94) * 2 1.170 2 1.401 2 1.277 2 1.247 2 1.057 2 1.022 (1.98) * * (4.23) * (2.62) * (3.53) * (2.52) * (2.45) *

JML

2 10.020 (1.26)

7.340 (2.95) *

If the variables in concern are cointegrated, equations should be estimated with JML rather than a VAR as in a standard Granger causality test. Hence, following Engle and Granger (1987), we estimated a JML model for Granger causality test and the representation is as follows:   n n n X X X PD ui D ln X t2i ki D ln Y Ft2i mi D ln D ln X t y E P F t2i 4 i1 i1 i1 p1 ECT t21 11t D ln Y Ft y
n X i1 n X i1 n X i1

Estimating export demand

11

ki D ln Y Ft2i

i D ln X t2i

PD mi D ln E PF


t2i

p2 ECT t21 12t PD D ln E PF   y

Ft n X i1

PD mi D ln E PF


t2i

n X ai D ln Y Ft2i i1

n X i1

4i D ln X t2i p3 ECT t21 13t

The ECTt-1 is the lagged error correction term derived from the long-run cointegrating relationship and [ 1t, [ 2t and [ 3t are the serially independent random errors. In each case, the dependent variable is regressed against past values of itself and past values of other variables. The JML-based Granger causality test is applied for both short- and long-run situations. Table IV presents these results.

Dependent variable DlnXt DlnYF Dln (PD/(E Singapore DlnXt DlnYF Dln (PD/(E China DlnXt DlnYF Dln (PD/(E Indonesia DlnXt DlnYF Dln (PD/(E Philippines DlnXt DlnYF Dln (PD/(E Malaysia DlnXt DlnYF Dln (PD/(E India

DlnXt 0.671 (0.54) 1.872 (1.35) 1.364 (1.65) 0.996 (1.75) 0.671 (3.54) * 1.872 (1.35) 0.122 (2.54) * 0.012 (0.67) 0.884 (2.23) * 0.995 (0.43) 0.005 (0.04) 0.032 (1.45)

DlnYF 0.238 (3.76) * 3.625 (0.77) 0.011 (2.73) * 3.320 (1.20) 0.238 (3.76) * 3.625 (0.77) 0.186 (2.12) * 5.870 (1.58) 0.227 (2.89) * 0.055 (1.07) 0.180 (3.52) * 4.778 (0.74)

Dln (PD/(E PF)) 21.302 20.007 20.836 21.338 21.302 20.007 20.005 20.116 20.523 21.783 20.902 21.995 (1.23) (1.61) (1.34) (0.67) (1.23) (1.61) (1.54) (1.01) (0.06) (1.62) (0.17) (0.95)

ECTt2 1 2 0.331 (7.64) * 2 0.201 (3.26) * 2 0.331 (7.64) * 2 0.788 (5.50) * 2 0.115 (8.92) * 2 0.673 (3.56) *

PF)) PF)) PF)) PF)) PF)) PF))

Notes: Signicant at: *5 percent level; absolute t-ratios are below the estimated coefcients

Table IV. Results of Granger causality test 1970-2007

JCEFTS 4,1

12

In the short run, the relative price is insignicant at 5 percent level in the all equations. This implies that relative prices do not Granger cause exports and income in the short run. However, there is bi-directional causality between export demand and income for China, Indonesia and Philippines. Alternatively, for India, Singapore and Malaysia the income is signicant at 5 percent level in the export demand equation, implying that income does Granger cause exports in these countries. The long-run results suggest that the coefcient of the lagged error term (ECTt2 1) is signicant at 5 percent level with correct negative sign in all the cases. This implies that in the long-run income and prices Granger cause exports. 4. Conclusion This paper uses the new specication proposed by Rao and Singh (2007) to estimate export demand equations for the Asian developing countries (India, China, Philippines, Indonesia, Singapore and Malaysia) for the period 1970-2007. Rao and Singh (2007) showed that excluding exchange rate in the relative price variable could result in obtaining bias income and price elasticities. Our results with the JML and FMOLS techniques reveal that the income elasticities range between 1 and 1.3. This implies that exports should be treated as an engine of growth in the Asian developing countries and the export promotion policies such as subsidies and tax concessions should be encouraged. The relative price elasticity is between 2 1 and 2 1.4 and implies that exports are competitive in the international market and these countries have the option to devalue the currency to enhance export earnings. Although the real devaluation of the currencies will push import costs high, eventually this motivates the local rms to undertake alternative options for instance, import substitution. Further, the gains resulting from the export growth policies will be attractive. Our Granger causality results imply that in the long-run income and relative prices Granger cause exports. With these ndings, we argue these Asian developing economies could effectively adopt policies that focus on increasing exports through an increase in foreign trading partners income and a fall in relative prices. Our study does have limitations. First, we did not test for structural breaks in the cointegrating relationship. There may be intercept and/or slope shifts in the sample data due to East Asian crises and future research may investigate these structural changes. Second, we used the simple specication of export demand proposed by Rao and Singh (2007). However, we assert that even this simple specication should be used appropriately. Third, we did not use disaggregated exports data that may provide some useful policy insights. We hope that our work is useful for further work on this topic.
Notes 1. However, testing the export-led growth is out of scope of our current paper. 2. These results are not reported to conserve space. 3. For more details on the JML technique, see Kumar (2007, 2009a, 2010), Kumar and Manoka (2008), Anoruo et al. (2010), Singh and Kumar (2010, 2011) and Kumar et al. (2011a, b). 4. For more details in applying the FMOLS technique, see Singh and Kumar (2010, 2011) and Kumar et al. (2011a, b).

References Abbott, A.J. and De Vista, G. (2002), Long run price and income elasticities of demand for Hong Kong exports: a structural cointegrating VAR approach, Applied Economics, Vol. 34, pp. 1025-32. Abu-Qarn, A.S. and Abu-Bader, S. (2004), The validity of the ELG hypothesis in the MENA region: cointegration and error correction model analysis, Applied Economics, Vol. 36, pp. 1685-95. Ahmad, J. and Harnhirun, S. (1995), Unit roots and cointegration in estimating causality between exports and economic growth: empirical evidence from the ASEAN countries, Economics Letters, Vol. 49, pp. 329-34. Ahmad, J. and Kwan, A.C.C. (1991), Causality between exports and economic growth: empirical evidence from Africa, Economics Letters, Vol. 37, pp. 243-8. Anoruo, E., Kumar, S. and DiPietro, B. (2010), A cointegration analysis of investment output ratio in Bangladesh, Indian Development Review, Vol. 8 No. 1, pp. 47-56. Arize, A.C. (2001), Traditional export demand relation and parameter instability: an empirical investigation, Journal of Economic Studies, Vol. 28 No. 6, pp. 378-98. Bahmani-Oskooee, M. and Alse, J. (1993), Export growth and economic growth: an application of cointegration and error correction modeling, The Journal of Developing Areas, Vol. 27, pp. 535-42. Bahmani-Oskooee, M. and Alse, J. (1994), Short-run versus long-run effects of devaluation: error-correction modeling and cointegration, Eastern Economic Journal, Vol. 20, pp. 453-64. Bahmani-Oskooee, M., Economidou, C. and Goswami, G.G. (2005), Export led growth hypothesis revisited: a panel cointegration approach, Scientic Journal of Administrative Development, Vol. 3, pp. 40-55. Bahmani-Oskooee, M., Mohtadi, H. and Shabsigh, G. (1991), Exports, growth and causality in LDCs: a re-examination, Journal of Development Economics, Vol. 36, pp. 405-15. Biswal, B. and Dhawan, U. (1998), Export-led growth hypothesis: cointegration and causality analysis for Taiwan, Applied Economics Letters, Vol. 5, pp. 699-701. Bodman, P.M. (2008), On export-led growth in Australia and Canada: cointegration, causality and structural stability, Australian Economic Papers, Vol. 35, pp. 282-99. Colombatto, E. (1990), An analysis of exports and growth, Kyklos, Vol. 43, pp. 579-97. Deme, M. (2002), An examination of the trade-led growth hypothesis in Nigeria: a co-integration, causality, and impulse response analysis, Journal of Developing Areas, Vol. 36, pp. 1-15. Dhawan, U. and Biswal, B. (1999), Re-examining export-led growth hypothesis: a multivariate cointegration analysis for India, Applied Economics, Vol. 31, pp. 525-30. Dodaro, S. (1993), Exports and growth: a re-consideration of causality, The Journal of Developing Areas, Vol. 27, pp. 227-44. Engle, R.F. and Granger, C.W.J. (1987), Co-integration and error correction: representation, estimation and testing, Econometrica, Vol. 55, pp. 251-76. Fan, J., Zheng, Q., Wang, Y., Yuan, X. and Liang, J. (2004), Does the Marshal-Lerner condition hold in China? Empirical analysis based on Chinas SAM of 2000, paper presented at the International Conference on Input-Output and General Equilibrium: Data, Modeling, and Policy Analysis, Brussels, 2-4 September. Greenaway, D. and Sapsford, D. (1994), What does liberalisation do for exports and growth, Weltwirtschafiches Archiv, Vol. 130, pp. 152-74.

Estimating export demand

13

JCEFTS 4,1

14

Guisan, M.C. and Cancelo, M.T. (2002), Econometric models of foreign trade in OECD countries, Applied Econometrics and International Development, Vol. 2, pp. 65-81. Henriques, I. and Sadorsky, P. (1996), Export-led growth or growth-driven exports? The Canadian case, Canadian Journal of Economics, Vol. 29, pp. 541-55. Husein, J. (2009), Export-led growth hypothesis: a multivariate cointegration and causality evidence for Jordan, The Journal of Developing Areas, Vol. 42, pp. 253-66. Hutchinson, M. and Singh, N. (1992), Exports, non-exports and externalities: a Granger causality approach, International Economic Journal, Vol. 6, pp. 79-94. International Financial Statistics (2007), IMF CD-ROM, International Monetary Fund, Washington, DC, December. Johansen, S. (1988), Statistical analysis of cointegrating vectors, Journal of Economics Dynamics and Control, Vol. 12, pp. 231-54. Keong, C.C., Yusop, Z. and Liew, V.K.-S. (2003), Export-led growth hypothesis in Malaysia: an application of two-stage least square technique, available at: http://ideas.repec.org/s/ wpa/wuwpif.html Kugler, P. and Dridi, J. (1993), Growth and exports in LDCs: a multivariate time series study, International Review of Economics and Business, Vol. 40, pp. 759-67. Kumar, S. (2007), The stability of the demand for money in Bangladesh: time series methods, The ICFAI Journal of Monetary Economics, Vol. V, pp. 27-35. Kumar, S. (2008), Income and price elasticities of exports in Philippines, The ICFAI Journal of Applied Economics, Vol. VII, pp. 40-6. Kumar, S. (2009a), An empirical evaluation of export demand in China, Journal of Chinese Economic and Foreign Trade Studies, Vol. 2, pp. 100-9. Kumar, S. (2009b), A re-examination of private consumption in Fiji, Pacic Economic Bulletin, Vol. 24, pp. 70-81. Kumar, S. (2009c), Structural breaks and exports in Philippines, Global Economy Journal, Vol. 9, pp. 1-8. Kumar, S. (2010), Efcacy of monetary policy in curtailing consumption: empirical evidence from Fiji, The ICFAI Journal of Monetary Economics, August, pp. 1-10. Kumar, S. and Manoka, B. (2008), Testing the stability of demand for money in Tonga, The Empirical Economics Letters, Vol. 7 No. 8, pp. 835-43. Kumar, S., Fargher, S. and Webber, D. (2011a), Testing the validity of the Feldstein-Horioka puzzle for Australia, Applied Economics (in press). Kumar, S., Webber, D. and Fargher, S. (2011b), Wagners Law revisited: cointegration and causality tests for New Zealand, forthcoming in Applied Economics (in press). Lewis, A. (1980), The slowing down of the engine of growth, American Economic Review, Vol. 70, pp. 555-64. Marquez, J. and McNeilly, C. (1988), Income and price elasticities for exports of developing countries, Review of Economics and Statistics, Vol. 70, pp. 306-14. Medina-Smith, E.J. (2001), Is the export-led growth hypothesis valid for developing countries? A case study of Costa Rica, available at: http://r0.unctad.org/ditc/tab/publications/ itcdtab8_en.pdf Muscatelli, V.A., Stevenson, A. and Montagna, C. (1995), An analysis of the disaggregated manufacturing exports of the Asian NIEs to EEC, USA and Japan, Applied Economics, Vol. 27, pp. 17-24.

Nowak-Lehmann, F.D. (2004), Different approaches of modeling reaction lags: how do Chilean manufacturing exports react to movements of the real exchange rate?, Applied Economics, Vol. 36, pp. 1547-60. Ostry, J.D. and Rose, A.K. (1992), An empirical evaluation of the macroeconomic effects of tariffs, Journal of International Money and Finance, Vol. 11, pp. 63-79. Pesaran, M.H. and Pesaran, B. (1997), Working with Microt 4.1, Oxford University Press, Oxford. Petreski, M. (2007), Export-led growth hypothesis: empirical facts from Macedonia, CEA Journal of Economics, Vol. 2, pp. 33-43. Phillips, P. and Hansen, B. (1990), Statistical inferences in instrumental variables regression with I(1) processes, Review of Economic Studies, Vol. 57, pp. 99-125. Rao, B.B. and Singh, R. (2007), Estimating export equations, Applied Economics Letters, Vol. 14, pp. 799-802. Riedel, J. (1984), Trade as the engine of growth in developing countries, revisited, Economic Journal, Vol. 94, pp. 56-73. Rose, A.K. (1990), Exchange rates and the trade balance: some evidence from developing countries, Economics Letters, Vol. 34, pp. 271-5. Rose, A.K. (1991), Does the Marshall-Lerner condition hold?, Journal of International Economics, Vol. 30, pp. 301-16. Senhadji, A.S. and Montenegro, C.E. (1999), Time series analysis of export demand equations: a cross country analysis, IMF Working Paper No. 98/149. IMF Staff Papers, International Monetary Fund, Washington, DC. Singh, R. and Kumar, S. (2010a), Application of the alternative techniques to estimate demand for money in developing countries,, forthcoming in the Journal of Developing Areas. Singh, R. and Kumar, S. (2010b), Some empirical evidence on the demand for money in the Pacic Island countries, Studies in Economics and Finance, Vol. 27, pp. 211-22. The Asian Development Bank (2007), Key indicators of developing Asia and Pacic countries, Economic and Financial Update 2007, The Asian Development Bank, Manilla. Van den Berg, H. and Schmidt, J.R. (1994), Foreign trade and economic growth: time series evidence from Latin America, Journal of International Trade and Economic Development, Vol. 3, pp. 249-68. Further reading Bahmani-Oskooee, M. and Niroomand, F. (1988), Long-run price elasticities and the Marshall-Lerner condition revisited, Economics Letters, Vol. 61, pp. 101-9. Appendix Xt is export of goods and services (free on board) deated by the export price index. Data are derived from International Financial Statistics (IFS, 2007) and The Asian Development Bank Database (ADB, 2007). YF is the trade-weighted average real income of a countrys major trading partners. Trade weights are computed as the share of trade to each of the trading partner country relative to the main countrys total trade. Data are derived from IFS (2007) and ADB (2007). Indias major trading partners are the USA, the UK, Singapore, UAE and Switzerland. Singapores major trading partners are the USA, Malaysia, Indonesia, Japan and China. Philippines major trading partners are the USA, Japan, The Netherlands, China and Singapore. Chinas major trading partners are the USA, Hong Kong, Japan, South Korea and Taiwan. Indonesias major trading partners are the USA,

Estimating export demand

15

JCEFTS 4,1

16

Japan, Singapore, China and South Korea. Malaysias major trading partners are the USA, Japan, Singapore, China and Thailand. PD is the price of a countrys export of goods, computed as the weighted average of the countrys unit value index of major domestic exports. Data are derived from IFS (2007) and ADB (2007). Et is the weighted average exchange rate and is the price of a unit of foreign currency in domestic currency. Data are derived from IFS (2007) and ADB (2007). PF is the import-weighted average of major trading partners export price indices. Import weights are computed as the share of respective imports to total imports. Data are derived from IFS (2007) and ADB (2007).

About the author Saten Kumar is a Lecturer in Economics at Auckland University of Technology, Auckland, New Zealand. His research interests include macroeconometrics, monetary economics and economic growth. He has published in journals such as Applied Economics, Applied Economics Letters and Economic Modeling. Saten Kumar can be contacted at: kumar_saten@yahoo.com

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints