The empirical modelling of NIE exports: An evaluation of different approaches

Abstract

This article investigates the current debate regarding the robustness of estimates of export demand and supply elasticities for LDCs and NIEs obtained by recent empirical studies. The empirical findings reported in the article suggest that price elasticities of demand are indeed low, and that there are strong and significant income effects on export demand. Furthermore, using a variety of modelling approaches, we demonstrate that the choice of estimation method and normalisation need not lead to drastically different conclusions regarding the size of the price elasticity of demand for NIE exports. Whilst this points against the ‘small‐country assumption’ usually made regarding LDC/NIE exports, we argue that the preferred development strategy for LDCs need not necessarily be an inward‐oriented one. This is because the large estimated income/market growth elasticities in the demand equations may be due to the presence of supply‐side influences which have been the focus of attention of the ‘new theories of international trade’, and which cannot be modelled at the aggregate level.

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