Long–run price and income elasticities of demand for Hong Kong exports: a structural cointegrating VAR approach

This article revisits a system of export volume and price equations to estimate the long–run price and income effects in the demand for Hong Kong's exports. Using a recently developed restricted cointegrating VAR approach it tests theorybased restrictions and obtains estimates of the long–run structural coefficients. The estimation results provide supporting evidence for the theory–based restrictions and suggest that the demand for Hong Kong's exports is both price and income elastic. This article is therefore able to present a long–run model of Hong Kong's exports that is both theory and data consistent, and long–run elasticities that are economically interpretable. The short–run properties of the model are illustrated by means of persistence profiles, which confirm the cointegrating vectors tendency of convergence.     

Trade,Determinants, and Causality: A Case of Hong Kong's Exports to The United States

This paper examines recent development in Hong Kong's exports to the United States. It explains the trade flows by estimating five demand-equations for exports. Besides, vector autoregressions are fitted to test the causal relationship among exports, exchange rates and income. Our study suggests that a sustained high growth rate of Hong Kong's exports of principal commodities to the United States contribute to the chronical bilateral trade surplus for Hong Kong. Variations in income and exchange rates, the major determinants of Hong Kong's exports, “cause” exports to change as indicated in the causality test. [420]     

A 'pricing-to-market' model with unobserved variables: explaining New Zealand's import prices

A model of ‘pricing-to-market’ (PTM) behaviour in import prices is developed for a small open economy to allow for two measurement problems: (i) that neither the marginal production cost of imported goods nor their corresponding (foreign-currency) export price are observable by the econometrician; (ii) that PTM behaviour, if it exists, alters the relationship between foreign countries' export price indices for total exports and the true, unobservable price index. The analysis shows that variations in the measured markup on import prices depends on the degree to which domestic demand is synchronized with world demand, whether bilateral exchange rate movements are due to domestic or foreign factors, and on the degree to which PTM behaviour differs from such behaviour in other countries. Equations estimated for the price of New Zealand (NZ) imports from the US strongly supports the model, and finds that the degree of PTM by US exporters in response to price and exchange rate movements is substantially greater in NZ than the average for other countries. However, the degree of PTM in NZ in response to excess demand is similar to that of other countries.     

Exchange‐rate volatility and US–Hong Kong industry trade: is there evidence of a ‘third country’ effect?

In an effort to better understand the determinants of trade flows worldwide, researchers have recently incorporated external volatility (in addition to that of the partners’ bilateral exchange rate) into their models. The so‐called ‘third country’ effect is present if adding this term changes the bilateral volatility estimates that are found when external volatility is omitted. This study examines US exports to Hong Kong for 143 industries, and imports from Hong Kong for 110 industries, and finds two key results. First, expected inflation due to Hong Kong's dollar peg leads to increased US exports in a large number of industries. Second, comparing our results with those of a previous study shows strong evidence of a ‘third country’ effect, especially for US imports. Nonparametric tests suggest that these effects differ by sector: for both exports and imports. Manufacturing industries that enjoy a large trade share are less likely to experience this effect once external volatility is incorporated into the analysis.     

Pricing-to-Market Behavior: Japanese Exports to the US, Asia, and the EU

The paper examines the pricing-to-market (PTM) behavior of Japanese exporters in the US, Asian, and EU markets. Empirical evidence shows that PTM elasticity is highest to the US market. This matches the in-tuitive reasoning that the US market is more competitive than the EU and Asian markets for Japanese exporters. Furthermore, PTM elasticities estimated in this paper using expected exchange rates are positive but their amounts are smaller than PTM elasticities estimated by previous studies with actual exchange rates. The difference may be due to the fact that the invoice currency for most Japanese exports is the US dollar.     

Exchange rate volatility and exports from East Asian countries to Japan and the USA

The purpose of this article is to investigate the impact of exchange rate volatility on exports in four East Asian countries (Hong Kong, South Korea, Singapore, and Thailand). Specifically, this article aims at determining whether the bilateral real exchange rate volatility between an East Asian country and its trading partner negatively affects the exports of the East Asian country. Considering the dominant roles of the USA and Japan as trading partners of those East Asian countries, this article focuses on the quarterly export volumes of East Asian countries to the US and Japan for the period from 1981 to 2004. Except for the case of Hong Kong's exports to Japan, cointegration tests and estimations of error correction models indicate exchange rate volatility has negative impacts on exports either in the short-run or in the long-run, or both. On the other hand, the real GDP of importing countries and depreciation of real bilateral exchange rates turn out, in general, to have positive effects. Of special interest is the finding that the impact of the exchange rate volatility does not show any stylized differences depending on whether the importing country is Japan or the USA, even though dollar invoicing dominates in East Asia.     

The response of the US export prices to changes in the dollar's effective exchange rate: further evidence from industry level data

The relationship between the dollar's effective exchange rate and the export price indexes for 13 two-digit US manufacturing industries is analysed to determine (i) which industry adjusts its dollar export price to dampen or amplify the effect of the exchange rate fluctuations on the foreign-currency price of its exports and (ii) whether the response of the export price index to appreciation and depreciation of the exchange rate is asymmetric. For several industries, evidence consistent with dampening the foreign-currency price of exports in an asymmetric fashion is found. The implications of the results for the price competitiveness of the industries studied is discussed.     

Impact of US monetary policy rate shock and other external shocks on the Hong Kong economy: A factor‐augmented vector autoregression approach

This paper uses the factor‐augmented vector autoregression framework to study the impact on the Hong Kong economy of the diverging monetary policies by the Fed, the European Central Bank (ECB) and the Bank of Japan as well as the slowdown of the Mainland economy. The empirical results show that shocks in US monetary policy rate mainly affect interest rate‐sensitive sectors in Hong Kong and that monetary easing from the European Central Bank and the Bank of Japan somewhat offsets the impact of tightening of the Fed. The transmission of external shocks is through trade and capital markets. Real variables such as real GDP growth and the unemployment rate are more sensitive to the economic slowdown in Mainland China. It is estimated that the combined effect of the four external shocks will on average lower Hong Kong's quarterly GDP growth by 0.6 percentage points and quarterly inflation by 0.2 percentage points in the first four quarters. However, Hong Kong's financial stability, particularly with regard to loan quality, banks’ capital and liquidity, is well maintained by macroprudential policies, suggesting that Hong Kong's financial system is resilient to external shocks.     

Bayesian analysis of Hong Kong's housing price dynamics

This paper uses a Bayesian vector‐autoregressive model with sign restrictions to estimate the underlying drivers of Hong Kong's housing price dynamics in the short run. While existing studies are useful in analysing housing valuation, little attention has been paid to the short‐run dynamics. In contrast, the present paper identifies short‐run drivers of housing prices using structural identification with theoretical underpinnings. We find that among the shocks that we have identified, bank lending shock and housing supply shock were the main factors affecting Hong Kong's housing prices. Low mortgage rates were another key factor that led to the significant increase in housing prices after the global financial crisis.     

The behaviour of Hong Kong stock prices

The primary function of a stock market is to allocate resources to the most profitable investment opportunities. If stock prices provide accurate signals for resource allocation, firms are able to make correct production–investment decisions, and investors are able to choose the most suitable stocks for investment. These choices are only possible if the market is efficient, that is, if stock prices ‘fully reflect’ all available information.

Hong Kong is now an international financial centre. Although Hong Kong's stock market is ranked as one of the five largest in the world in terms of turnover, little research has been devoted to the behaviour of its stock prices. This is a study of the efficiency of Hong Kong's stock market. It is based upon two widely accepted statistical tests, namely, serial correlation analysis and runs tests. Data used cover the daily prices of 28 major Hong Kong stocks over a period of four years from 1977 to 1980. The evidence is mixed; it does not provide clear support for the efficient market hypothesis.     

Does the distinction between gross and value‐added exports matter? An empirical investigation of export elasticities

This study uses bilateral U.S. export data from the OECD’s Trade in Value‐Added database to estimate and compare elasticities for three distinct export measures: conventional measures of gross exports, domestic value added in gross exports, and value‐added exports. It finds little evidence of significant differences in the income elasticities across the three export measures or in the price elasticities of gross exports and domestic value added in gross exports. However it finds a significantly higher price elasticity for value‐added exports, suggesting that conventional price elasticity estimates may underestimate the impact of a real dollar depreciation on U.S. exports of value added.     

Exchange Rate Passthrough to Export Prices: Assessing Cross‐Country Evidence*

A growing empirical literature reports evidence of a decline in exchange rate passthrough to import prices in a number of industrial countries. Our paper complements this literature by examining passthrough from the other side of the transaction; that is, we assess the exchange rate sensitivity of export prices (denominated in the exporter's currency). We find that the prices charged on exports to the United States are more responsive to the exchange rate than are export prices to other destinations, which is consistent with results in the literature that import price passthrough in the US market is relatively low. In addition, the exchange rate sensitivity of export prices over time has been significantly affected by country‐ and region‐specific factors, including the Asian financial crisis (for emerging Asia), deepening integration with the United States (for Canada), and the effects of the 1992 ERM crisis (for the United Kingdom).     

Why don't firms export more? Product quality and Colombian plants

Exporting firms around the world ship only a small fraction of their output overseas. For firms in a large country, such as the United States, this behavior can be explained by the existence of a large domestic market. For firms in a small lower income country, such as Colombia, the lower share of exports remains a puzzle. This paper begins by illustrating the failure of current models to explain plant export patterns in Colombia. Even models that do well in describing the US export distribution fail when confronted with the Colombian data. In response to this puzzle, this paper suggests that Colombia's export distribution can be explained with a two-dimensional productivity space where output productivity is considered separately from quality productivity. Predictions of this theory are tested on Colombian plant level data from 1981–1991. Overall, product quality is shown to be a significant factor in explaining the tendency for Colombian plants to under-export manufactured goods to the United States.     

TRADE AND WAGE INEQUALITY: THE HONG KONG CASE

Abstract. This paper examines the effects of Hong Kong–mainland China trade on the wage inequality in Hong Kong. Because of the large volume of trade and the large income disparity between these two regions, this empirical study provides a good test of the theories on North–South trade. The econometric analyses show that the relative wage between the skilled and unskilled workers in Hong Kong increased as the share of the volume of Hong Kong's trade with mainland China in Hong Kong's total trade volume rose.     

AUSTRALIAN COMMODITY EXPORT PASS-THROUGH AND FEEDBACK CAUSALITY FROM COMMODITY PRICES TO THE EXCHANGE RATE

Commodity export pass-through is examined for Australia in an attempt to determine whether Australia is a price-taker in its commodity export trade. This is undertaken for seven categories of Australia's main commodity good exports. We also determine if there is feedback causality from particular world commodity prices back to the exchange rate as is often hypothesised for commodity good intensive exporting countries. It is found that Australian commodity good export pass-through is complete for the goods which are relatively less important in its export trade but is incomplete (although high) for the goods which are most important in its export trade. There is significant feedback causality to the exchange rate from the world price of coal and wheat, two of Australia's most important commodity good exports over the 1980s and early 1990s.     

Trade with China: do the figures add up?

There are wide discrepancies in bilateral trade data compiled by China and by its trading partners, particularly the United States. This paper investigates the main reasons, notably the role of Hong Kong as an entrepôt, and develops a methodology to provide more accurate estimates for these trade flows. It extends the Sung—Lardy method in recent literature and achieves a reconciliation of the two data sets by China and by its major partners. The method recognizes that both the Chinese and the partners' data are likely to be distorted and demonstrates that a complete picture can he constructed by using data recorded from Hong Kong. A new estimate of the re-export margins in Hong Kong on Chinese exports is presented and used in the data reconciliation exercises, and problems of valuation and transit lag when comparing an export series with its counterpart import series are taken into account by the new method. The effects of using proved data are demonstrated in an application to examine fair market access in China—US bilateral trade undertaken by Tower (1993).     

DO INTELLECTUAL PROPERTY RIGHTS MATTER TO TAIWAN'S EXPORTS? A DYNAMIC PANEL APPROACH

This article analyses whether and how Taiwan's exports are sensitive to national differences in intellectual property right (IPR) protection, as well as the degree of imitation threat. Applying a longitudinal IPR index developed by the World Economic Forum (WEF) and using the generalized method of moments dynamic panel data modelling technique to control for endogeneity and panel unit root problems, the empirical results show that the strength of importing countries' IPR protection has a positive impact on Taiwan's exports, supporting the standpoint of market expansion that stronger IPR protection will induce more trade. Under various classification systems to differentiate the degree of threat of imitation across countries, both positive and negative export effects of IPR are found in Taiwan's case. However, the pattern of threat of imitation–trade nexus seems to contradict theory predictions. Moreover, high‐tech exports are found be more IPR sensitive than non‐high‐tech exports.     

Does China really lose from RMB revaluation? Evidence from some export industries

This study attempts to examine the impacts of Real Exchange Rate (RER) misalignment on China's export performance. Using the SUR methodology coupled with disaggregate panel export data, it shows that China's export sector may not necessarily lose from the Central Government's decision to revalue its RMB against the US dollar because the negative impact of the RER appreciation on Chinese exports may be diluted by the positive impacts attributing to a reduction in the RER misalignment.     

An economic evaluation of market development programmes for US dairy products

‘This study measured the effectiveness of US dairy export promotion programmes on increasing foreign demand and enhancing producers’ revenues. An import demand equation based on panel data was used to test whether export promotion has a positive and significant impact on US dairy exports. The effects of various promotion scenarios on the dairy market were then simulated, and benefit–cost ratios (BCRs) for these programmes were estimated. There were three key findings. First, the combined effort of public and private dairy export promotion expenditures had a positive and statistically significant impact on demand for US dairy products in the world market. The findings indicated that export promotion stimulated total dairy exports by 4.14 billion pounds, on average, per year, which represented 55.8% of total exports. Second, US dairy export promotion has been highly profitable for the nation’s dairy farmers. The calculated BCRs, based on assumed elasticity of supply, ranged from a low of 8.54 for the most elastic assumption to a high of 30.12. Third, from an optimality standpoint, dairy farmers are underinvesting in export promotion. The marginal BCRs ranged from a low of 3.79 to a high of 15.22, which means that, at the margin, increasing export promotion expenditures would be profitable for dairy farmers.     

Foreign direct investment, regional market conditions and regional development

This paper uses regional panel data to investigate the mechanism whereby foreign direct investment (FDI) has contributed to China's regional development through quantifying regional marketization levels. It is found that FDI inflow generates a demonstration effect in identifying regional market conditions for investment in fixed assets and hence affects industrial location. In addition, its effects on regional export and regional income growth have varied across east, central and west China since the second half of the 1990s, depending on differences in FDI orientation between different regions. In east China, geographical advantage in exports attracts FDI inflow and FDI promotes exports. In addition, the rise of the FDI–GDP ratio increases east China's share in national industrial value added. These effects contribute positively to regional income growth in east China although there is a direct crowding‐out effect between FDI and domestic investment (as input) in growth. In contrast, the negative impact of FDI inflow on regional export orientation in central China weakens its contribution to regional income growth. Furthermore, the contribution of the improvement in the market mechanism to regional development is evidenced in attracting FDI, in promoting export and directly contributing to regional income growth.