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RELATIVE RESPONSIVENESS OF TRADE FLOWS TO A CHANGE IN PRICES AND EXCHANGE RATE IN DEVELOPING COUNTRIES

Mohsen Bahmani-Oskooee () and Orhan Kara

Journal of Economic Development, 2008, vol. 33, issue 1, 147-163

Abstract: In 1950 Orcutt conjectured that a country¡¯s trade flows could respond to a change in exchange rate quicker than they do to a change in relative prices. Previous research that supported Orcutt¡¯s hypothesis employed non-stationary data rendering the results to suffer from spurious regression problem. When we account for stationarity of the data by using cointegration and error-correction modeling, no strong evidence is found in support of the Orcutt¡¯s hypothesis. The findings in this paper for developing countries are similar to those found for developed countries.

Keywords: Trade Flows; Relative Prices; Exchange Rate; Bounds Testing (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2008
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