Modeling and Estimation of Export Equations within a Multisectoral Model: The Indian Case

• Published in: The Journal of developing areas Vol. 26; no. 4; pp. 507 - 520
• Main Author: Mukerjee, Swati
• Format: Journal Article
• Language: English
• Published: Macomb Western Illinois University 01-07-1992; Journal of Developing Areas
• Subjects: Demand; Demand curves; Econometrics; Economic models; Elasticity of demand; Exports; Imports; India; International trade; Macroeconomic modeling; Modeling; Production functions; Simulation; Supply; Supply and demand; Trade development; Trade volume; India
• ISSN: 0022-037X; 1548-2278

A trade model is presented that is embedded in a larger multisectoral econometric model using India as the index case. The model is specified so that export prices are endogenous within a long-run dynamic framework that fully incorporates multisectoral links. Returns to scale are not restricted to being constant. The production function, domestic and foreign demand functions, as well as labor and capital demand functions for each sector are simultaneously estimated, and simultaneity bias is controlled using principal components by a modification of Klein's (1969) method. The model was simulated for the period 1964-1979. The empirical results for India show that, when estimated in the framework of a multisectoral model, disaggregated export demand elasticities are, in the main, less than unity. This is in contradistinction to previous aggregate results. Counterfactual policy simulations show the impact on exports of 2 possible scenarios - a change in the volume of world trade and devaluation of the rupee.