On the Estimation of Simultaneous-Equations Error-Components Models with an Application to a Model of Developing Country Foreign Trade

Terrence Kinal () and Kajal Lahiri

Journal of Applied Econometrics, 1993, vol. 8, issue 1, 81-92

Abstract: An empirical balance of payments model involving the demand and supply of imports and exports for 31 developing countries is estimated utilizing panel data over 1964-87. In order to compute error-components 3SLS estimates of this model, which requires different instruments for different equations, we propose a generalization of the Fuller-Battese transformation to obtain GMM estimates. Our empirical results suggest that very little of the short-run adjustment in external imbalances is likely to be achieved by exchange rate policies, and most of the burden must fall on aggregate demand management. Copyright 1993 by John Wiley & Sons, Ltd.

Date: 1993
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