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The International Journal of Applied Economics and Finance

Year: 2012 | Volume: 6 | Issue: 3 | Page No.: 109-116
DOI: 10.3923/ijaef.2012.109.116
Determinants of the Dominican Republic’s Export Demand Function: Results from the Bounds Test for Co-integration
Santiago Grullon

Abstract: This study presents an empirical examination of the Dominican Republic’s aggregate export demand function under alternative growth and foreign exchange regimes during the periods of 1960-1984 and 1985-2005. Using the ‘bounds’ testing approach to co-integration and a method is developed to derive long-run price and income demand elasticities for exports, two export demand functions are estimated and both show the existence of a long-run (co-integrated) relationship between exports, relative prices and foreign income. During the era of inward-oriented growth (1960-1984), the estimated price elasticity of exports has the expected sign and is above unity, indicating that relative prices exerted an above-unity effect on exports. Moreover, the income-demand elasticity is above unity and shows that exports were strongly affected by foreign economic activity. During the era of outward-oriented growth (1985-2005), the price elasticity of demand is below unity and denotes that exports became price inelastic, indicating that devaluation could not be used to increase their growth. However, the income-demand elasticity, though slightly smaller than during the previous period, indicates that total exports continued to be income elastic.

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How to cite this article
Santiago Grullon , 2012. Determinants of the Dominican Republic’s Export Demand Function: Results from the Bounds Test for Co-integration. The International Journal of Applied Economics and Finance, 6: 109-116.

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