Long–run price and income elasticities of demand for Hong Kong exports: a structural cointegrating VAR approach

Abstract

This article revisits a system of export volume and price equations to estimate the long–run price and income effects in the demand for Hong Kong's exports. Using a recently developed restricted cointegrating VAR approach it tests theorybased restrictions and obtains estimates of the long–run structural coefficients. The estimation results provide supporting evidence for the theory–based restrictions and suggest that the demand for Hong Kong's exports is both price and income elastic. This article is therefore able to present a long–run model of Hong Kong's exports that is both theory and data consistent, and long–run elasticities that are economically interpretable. The short–run properties of the model are illustrated by means of persistence profiles, which confirm the cointegrating vectors tendency of convergence.

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