Dear Researchers
Please someone tell me, what is the economic rational to take the cost of production (proxy by wages) as exogenous variable in export supply function? please explain it i am very thankful to you
Regards
Sayed Irshad Hussain
One rationale could be that exchange rates don't just affect export competitiveness in the sense of trade balance, but at the intermediate level, it can have an influence on labour-intensive export production (e.g. production of commodities). Assuming that the labour resource is disproportionately foreign and wages are paid in a foreign currency. Especially so if the competitiveness effect may be overshadowed by labor costs effects. In which case, it makes sense to treat a fraction of production costs as exogenous in the export supply function.
Dear Lew
I did not understand your points please if possible explain it in detail
thanks and best regards
Sayed Irshad Hussain
Dear Hussain,
Production cost wil, in general, be important for any supply (not only for export). With a simple Cobb-Douglas function Q=cK^a*L^b (Q...production=supply, K...capital, L...labor, a,b
Dear Sayed, I’d try to explain it in the simplest way.
As any other producer, exporters deal with production costs. One of them (maybe the most important in economics) is wage. As export supply depends on international prices then relative production costs are determinants. That’s why wages are considered as an exogenous variable.
Best regards!
Ramiro
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