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]