A Structural Model for Developing Countries' Manufactured Exports

A dynamic structural econometric model is developed to analyzemovements in manufactured exports and to capture lags in theadjustment to equilibrium. The model is estimated with pooledcross-section time-series data for a representative sample offifteen developing countries grouped according to their exportmarket power. The results suggest that prices, domestic productivecapacity, and external economic activity are critical determinantsof manufactured exports from developing countries. The structuralparameter estimates are used to infer the effects of changesin destination country income, distinguishing between the short-runand long-run export volume and export revenue effects. The resultsindicate that domestic economic policies that promote investmentand capacity in export-oriented activities are likely to playa key role in increasing foreign exchange earnings in developingcountries, even if growth in external demand is slow.