I am estimating a country-level export supply function. As such, I must use a price variable. Literature points to real effective exchange rate as the best proxy for price, but I don't have data for all countries in my sample.
Please suggest to me any other proxies I could consider.
Muthoka- see my 1987 paper in Applied Economics. It is the log(PX/PD)
: An Econometric Examination of Import Demand Function in Thirty Developing Countries Journal of Post Keynesian Economics 1987. I think the Applied Economics (above )is in 1988
Hi Muthoka, yes Chuck is correct. You’ll need to start by constructing two price indices, and then use the log of (Px/Pn). The first, ‘Px’, is the export price index. The second, ‘Pn’ is the price index of foreign substitute goods (available at aggregate and sectoral level for OECD countries from OECD Main Economic Indicators) multiplied by the exchange rate (defined as the price of foreign currency in domestic currency terms). For an application using exactly the same procedure see ‘The Impact of Exchange Rate Volatility on UK Exports to EU Countries’ (2004) by De Vita and Abbott, published in Scottish Journal of Political Economy, full text downloadable from my research gate page.. Good luck with your research. Prof Glauco De Vita
Thanks Profs De Vita and Arize for replies.
My present challenge is that I am not interested in the sectoral disaggregation of exports. Does this approach still work nevertheless?
Regards...
Yes, of course, Muthoka. If you just work with aggregate exports it is even easier, but you still need a relative price variable as detailed above.
Thank you De Vita.
And, if you would, I could consult you one on one on the work. there are some more sample-specific issues I find challenging.
Regards,
Muthoka.
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