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SUPPLY behavior in international trade has been notoriously difficult to capture empirically. Indeed, so few published supply studies exist that Stern, Francis, and Schumacher's (1976) bibliographical survey of price elasticities in international trade devotes over 350 pages to demand estimates but barely 10 pages to supply estimates. In recent years, only Goldstein and Khan (1978) and Dunlevy (1980), using simultaneous-equation estimation techniques, have reported estimates of supply behavior in international trade.' Exogenous shocks to demand and supply for traded goods in general influence both quantity and price. For supply estimates, it is unclear a priori whether the response is more appropriately specified with quantity or price as the dependent variable. However, if supplying firms in an uncertain world pursue pricing strategies based on past market performance (as in Zabel (1981)), the appropriate specification is a supply-price equation. In this case, prices respond to lagged quantities, which implies that the traditional supply-quantity specification (with present and past prices as explanatory variables) cannot capture the dynamic supply behavior. In this study, we explore the hypothesis that previous attempts to estimate supply behavior have generally failed not only because of the well-known problem of simultaneity bias, but also because quantity rather than price was specified as the dependent variable. Section II presents and discusses traditional supply-quantity equations based on quarterly data for aggregate exports and imports for the United Kingdom and the United States from 1947 to 1979. Section III briefly discusses the theoretical rationale of a supply-price specification and presents estimates of supply-price equations based on the same data. Section IV evaluates the empirical evidence to determine whether a supply-quantity or supply-price formulation is more appropriate, and compares estimates of long-run price elasticities of supply based on the two approaches. A final section summarizes the conclusions.
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