An Estimation of Ecuador's Export Demand Function with the US

Ranjini L. Thaver and Christina Bova

The International Journal of Business and Finance Research, 2014, vol. 8, issue 1, 89-102

Abstract: This paper employs the bounds testing approach to cointegration to estimate Ecuador’s export demand function with the US between 1965 and 2011 with special emphasis on dollarization’s impact on expors . We develop two different export demand models based on previous empirical studies of this nature. Model I defines real exports as a function of the US real GDP, relative prices, exchange rate volatility, and dollarization. Model II relates real exports to US real GDP, real exchange rate, volatility, and dollarization. Results confirm a unique cointegration relationship between exports and its regressors in Models I & II. In the long run, in both models, GDP is positive and elastic, while volatility is positive and inelastic. Relative prices in Model I and real exchange rate in Model II are not statistically significant. Both models reveal that dollarization has had a significant, but negative and inelastic long-run and shortrun impact on Ecuador’s exports to the US. Further, Model I seems to be superior to Model II in terms of the strength of cointegration, long-run and short-run elasticities, adjusted R2, and in satisfying diagnostic tests.

Keywords: Ecuador; Export Demand; Dollarization; Elasticity; Cointegration (search for similar items in EconPapers)
JEL-codes: F14 F31 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ibf:ijbfre:v:8:y:2014:i:1:p:89-102

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