New trade theory, non-price competitiveness and export performance

Athanasoglou, Panayiotis and Bardaka, Ioanna (2010): New trade theory, non-price competitiveness and export performance. Published in: Economic Modelling , Vol. 27, No. 1 (January 2010)

Abstract

This paper develops a demand function for Greece's exports of manufactures according to New Trade Theory. Non-price competitiveness plays a vital role in explaining export performance and failure to include it in the export equation may lead to mis-specification error. Foreign income has a moderately high effect on exports in the long run and no effect in the short run. Exports are also sensitive to domestic and competitors' prices in the long run, but cost and price competitiveness elasticities are close to one, indicating that Greek exporters have some ability to compete on the basis of prices.

• Item Type: MPRA Paper
• Language: English
• Keywords: Export demand; Price and non-price competitiveness; New trade theory; Vector autoregressive error correction model
• Subjects: F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes

References

Ahluwala, I.J., and I. Hernandez-Cãta,(1975), “An Economteric Model of US Merchandise Imports under Fixed and Flexible Exchange Rates, 1959-1973”, IMF Staff Papers, 22 (3), 791-824.

Arize, A.,(1987), “The Supply and Demand for Imports and Exports in a Simultaneous Model”, Applied Economics, 19, 1233-1247.

Athanasoglou, P.P.,(1990), “A Disequilibrium Model for a Small Open Economy”, D.Phil. Thesis, Sussex University, U.K.

Bank of Greece, Governor’s Report for 2004, Athens, (2005). Bierens, H.J., (1993), “Higher Order Autocorrelation and the Unit Root Hypothesis”, Journal of Econometrics, 57, 137-160.

----------------, (1997), “Testing the Unit Root Hypothesis against Non-linear Trend Stationarity, with an Application to the Price Level and Interest Rate in the US”, Journal of Economerics, 81, 29-64.

----------, and S. Guo, (1993), “Testing Stationarity and Trend Stationarity Against the Unit Root Hypothesis”, Econometric Reviews, 12, 1-32.

Catao L., and E. Falcetti,(2002), “Determinants of Argentina’s External Trade”, Journal of Applied Economics, Vol. V, No 1, May, 19-57.

Chinn, M.,(2003), “Doomed to Deficits? Aggregate US Trade Flows Reexamined”, NBER Working Paper, No. 9521, February.

Dickey, D.A., and W.A. Fuller,(1981),“Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root,” Econometrica, 49, 4, 1057-1072.

European Central Bank, MPC Task Force, (2005), Occasional Paper Series No. 30, “Competitiveness and the Export Performance of the Euro Area”.

Durand, M., (1986), “Method of Calculating Effective Exchange Rates and Indicators of Competitiveness”, OECD, Department of Economics and Statistics, Working Paper 29.

Eisner, R., and N.T. Nadiri, (1968), “Investment Behavior and Neoclassical Theory”, Review of Economic Studies, 50, 369-382.

Enders, W., (2004), Applied Econometric Time Series, 2nd. Ed. John Wiley & Sons.

Engle, R.F., and C.W.J. Granger, (1987), “Co-integration and Error Correction: Representation, Estimation, and Testing,” Econometrica, 55, 2, 251-276.

Engle, R.F., and D.F. Hendry,(1993), “Testing Super Exogeneity and Invariance in Regression Models,” Journal of Econometrics, 56, 119-139.

Funke, M., and R. Ruhwedel, (2001), “Export Variety and Export Performance: Empirical Evidence from East Asia”, Journal of Asian Economics, 12, 493-505.

Goldstein, M., and M.S. Khan, (1978), “The Supply and Demand for Exports: A Simultaneous Approach”, Review of Economics and Statistics, 60, 275-286.

-------------------------------,(1985), “Income and Price Effects in Foreign Trade” in R.W. Jones and P.B. Kenen (eds.), Handbook of International Economics, II.

Grossman, G., and E. Helpman (1995), “Technology and Trade”, Ch. 25 in Handbook of International Economics, Vol.3, ed. by G. Grossman and K. Rogoff, Elsevier, Amsterdam.

--------------------------, (1991), “Innovation and Growth in the Global Economy”, MIT Press, Cambridge MA.

Harris, R.I.D., (1995), Using Cointegration Analysis in Economic Modeling, Prentice Hall, New York.

Hendry, D.F., and G.E. Mizon,(1993), “Evaluating Dynamic Econometric Models by Encompassing the VAR,” Chapter 18 in P.C. Phillips (ed.) Models, Methods, and Applications of Econometrics: Essays in honor of A.R. Bergstrom, Cambridge, Massachusetts, Basil Blackwell, 272-300.

------------------,(1995), “Serial Correlation as a Convenient Simplification not a Nuissance: A Comment on a Study of Demand for Money by the Bank of England”, Economic Journal, 88, 549-563.

Houthakker, H.S., and S.P. Maggee,(1969), “Income and Price Elasticities in World Trade”, Review of Economics and Statistics, 51, 111-125.

Johansen, S., (1991), “Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models”, Econometrica, 59, 6, 1551-1580.

Johansen, S.,(1992a), “Testing Weak Exogeneity and the Order of Cointegration in UK Money Demand Data,” Journal of Policy Modeling, vol. 14:3, 313-334.

----------------, (1992b), “Determination of Cointegration Rank in the Presence of a Linear Trend”, Oxford Bulletin of Economics and Statistics, Vol. 54:2, 383-397.

----------------, and K. Juselius, (1990a), “Maximum Likelihood Estimation and Inference on Cointegration – with Application on the Demand for Money”, Oxford Bulletin of Economics and Statistics, 52, 169-210.

--------------------, (1990b), “Some Structural Hypotheses in a Multivariate Cointegration Analysis of the Purchasing Power Parity and the Uncovered Interest Parity for UK”, Institute of Mathematical Statistics, University of Copenhagen, February, Preprint No.1.

Jorgenson, D.W., and G.D.Siebert,(1968), “A Comparison of Alternative Theories of Corporate Investment Behavior”, American Economic Review, 39, 681-712.

Juselius, K.,(1995), “Do Purchasing Power Parity and Uncovered Interest Rate Parity Hold in the Long Run? An Example of Likelihood Inference in a Multivariate Time-Series Model”, Journal of Econometrics, 69, 211-240.

Kintis, A.,(1973), “The Demand for Labor in Greek Manufacturing”, Center of Planning and Economic Research, Athens.

Krugman, P.,(1989), “Differences in Income Elasticities and Trends in Real Exchange Rates”, European Economic Review, 33, 5, 1031-54.

Madden G., S.J. Savage, and S.Y. Thong,(1999), “Technology Investment and Trade: Empirical Evidence for Five Asia Pacific Countries, Applied Economics Letters, 6, 361-363.

Muscatelli, V.A., T.G. Srinivasan, and D. Vines, (1992), “Demand and Supply Factors in the Determination of NIE Exports: A Simultaneous Error-Correction model for Hong-Kong”, The Economic Journal, Nov., 1467-1477.

Muscatelli, V.A., A. Stevenson, and C. Montagna, (1995), “Modeling Aggregate Manufactured Exports for Some Asian Newly Industrialized Economies”, The Review of Economics and Statistics, Vol. 77, No. 1, February, 147-155.

O’Donnell, N., (2005), “Re-Estimation of The Trade Block In the Bank’s Quarterly Macro-Econometric Model”, Quarterly Bulletin, Central Bank of Ireland, 3.

Osterwald-Lenum, G., (1992), “A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics: Four Cases”, Oxford Bulletin of Economics and Statistics, vol 54:3, 461-472.

Owen C., and S. Wren-Lewis,(1993), “Variety, Quality and UK Exports” Discussion Paper 14. The University of Strathclyde, International Centre for Macroeconomic Modeling, Glasgow.

Pesaran, M.H., Shin, Y., Smith, R.J,(2000), “Structural Analysis of Vector Error Correction Models with exogenous I(1) Variables”, Journal of Econometrics 97, 293-343.

Prodromidis, K.P.,(1975), “Greek Disaggregated Import and Export Demand Functions”, Weltwirtschaftliches, Archiv., Bank III, Hef.2.

Prodromidis, K.P., and J.N. Anastassakou, (1983), “The Determinants of Greece’s Commodity Trade 1961-1978”, Center of Planning and Economic Research Studies, No. 1, Athens.

Quandt, R.E.,(1960), “Test of the Hypothesis that a Linear Regression obeys Two Separate Regimes”, Journal of the American Statistical Association, 66, 324-330.

Reimers, H.-E.,(1992), “Comparisons of Tests for Multivariate Cointegration”, Statistical Papers, 33, 335-359.

Thirwall, A.P.,(1986) Balance of Payments Theory and the UK Experience, 3rd ed. Macmillan, London.

Turnovsky, S.J.,(1968), “International Trading Relationships for a Small Country: The Case of New Zealand”, The Canadian Journal of Economics, 1 (4), 772-790.

Venables, A.,(1984), “International Trade and Industrial Policy and Imperfect Competition: A Survey”, Center for Economic Policy Research, D.P. No. 74.

Wilson J.F., and E.W. Takacs, (1979), “Differential Responses to Price and Exchange Rate Influences in the Foreign Trade to Selected Industrial Countries”, Review of Economics and Statistics, 64, 267-279.