Price and income elasticities of disaggregated import demand: results from UECMs and an application
TL;DR: In this article, an empirical analysis of the demand for maize, milk powder, butter, and rice imports in Cyprus, using annual time series data covering the period 1975-1994, is presented.
Abstract: This paper presents an empirical analysis of the demand for maize, milk powder, butter, and rice imports in Cyprus, using annual time series data covering the period 1975–1994. None of these products is produced in Cyprus and all the necessary quantities are imported to meet domestic demand. The primary objective of the paper is to derive long-run price and income elasticities of import demand that can be used to analyse the impact of various policies such as the adoption of the Common Agricultural Policy (CAP) when, and if, the Republic of Cyprus joins the European Union (EU). In so doing the paper takes on board some recent developments in time series econometrics. The cointegration test used (the ‘bounds’ test) is a recent test and is based on the estimation of an unrestricted error-correction model (UECM). Parsimonious models were derived using Hendry's ‘general to specific’ approach. The estimated elasticities were subsequently used to quantify some of the implications for Cyprus had the CAP been ope...
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01 Jan 2004
TL;DR: In this paper, the authors examined the short-and long-run relationships between visitor arrivals to Fiji, real disposable incomes, and own-hotel price and substitute hotel price for the period 1970-2000, using the bounds testing approach to cointegration and error correction models.
Abstract: This paper examines the short-and long-run relationships between visitor arrivals to Fiji, real disposable incomes, and own-hotel price and substitute hotel price for the period 1970-2000, using the bounds testing approach to cointegration and error correction models. The paper's main contribution is that it generates bounds F-statistic critical values specific to the study's sample size (31 observations) and finds that critical values are 35.5% higher than those reported in Pesaran et al. (2001) for 1000 observations and 17.1% higher than those reported in Pesaran and Pesaran (1997) for 500 observations for a model with 4 regressors and an intercept. In the light of this, we tabulate critical values for sample sizes ranging from 30 observations to 80 observations, which will be usefull for future researchers using the bounds testing approach to cointegration.
449 citations
TL;DR: In this article, an import demand model for Fiji using the recently developed bounds testing approach to cointegration for the period 1972 to 1999 is presented, where the authors find that the coefficient on income is elastic while the coefficient of relative prices (import price relative to domestic price) is unitary elastic.
313 citations
TL;DR: In this article, the authors employ the bounds test for cointegration and Granger causality tests to investigate a long-run equilibrium relationship between tourism, trade and real income growth, and the direction of causality among themselves for Cyprus.
Abstract: Although the relationship between international trade and economic growth has found a wide application area in the literature over the years, this can not be said about tourism and growth or trade and tourism This study employs the bounds test for cointegration and Granger causality tests to investigate a long-run equilibrium relationship between tourism, trade and real income growth, and the direction of causality among themselves for Cyprus Results reveal that tourism, trade and real income growth are cointegrated; thus, a long-run equilibrium relationship can be inferred between these three variables On the other hand, Granger causality test results suggest that real income growth stimulates growth in international trade (both exports and imports) and international tourist arrivals to the island Furthermore, growth in international trade (both exports and imports) also stimulates an increase in international tourist arrivals to Cyprus And finally, real import growth stimulate growth in real export
245 citations
Cites background from "Price and income elasticities of di..."
...Furthermore, there are very few studies analysing international trade and its effect on economic growth of Cyprus (Asseery and Perdikis, 1991; Ayers, 1999; Pattichis, 1999; Andrikopoulos and Loizides, 2000)....
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TL;DR: In this paper, an empirical analysis of the import demand for certain information technology products in Korea is presented, where the unrestricted error correction model is used to derive the long run price and income elasticities of import demand, considering the small sample size.
204 citations
TL;DR: In this paper, the authors examined the residential demand for electricity in South Africa as a function of real gross domestic product per capita, and the price of electricity during the period 1978-2005.
189 citations
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TL;DR: The relationship between co-integration and error correction models, first suggested in Granger (1981), is here extended and used to develop estimation procedures, tests, and empirical examples.
Abstract: The relationship between co-integration and error correction models, first suggested in Granger (1981), is here extended and used to develop estimation procedures, tests, and empirical examples. If each element of a vector of time series x first achieves stationarity after differencing, but a linear combination a'x is already stationary, the time series x are said to be co-integrated with co-integrating vector a. There may be several such co-integrating vectors so that a becomes a matrix. Interpreting a'x,= 0 as a long run equilibrium, co-integration implies that deviations from equilibrium are stationary, with finite variance, even though the series themselves are nonstationary and have infinite variance. The paper presents a representation theorem based on Granger (1983), which connects the moving average, autoregressive, and error correction representations for co-integrated systems. A vector autoregression in differenced variables is incompatible with these representations. Estimation of these models is discussed and a simple but asymptotically efficient two-step estimator is proposed. Testing for co-integration combines the problems of unit root tests and tests with parameters unidentified under the null. Seven statistics are formulated and analyzed. The critical values of these statistics are calculated based on a Monte Carlo simulation. Using these critical values, the power properties of the tests are examined and one test procedure is recommended for application. In a series of examples it is found that consumption and income are co-integrated, wages and prices are not, short and long interest rates are, and nominal GNP is co-integrated with M2, but not M1, M3, or aggregate liquid assets.
27,170 citations
TL;DR: In this article, the limit distributions of the estimator of p and of the regression t test are derived under the assumption that p = ± 1, where p is a fixed constant and t is a sequence of independent normal random variables.
Abstract: Let n observations Y 1, Y 2, ···, Y n be generated by the model Y t = pY t−1 + e t , where Y 0 is a fixed constant and {e t } t-1 n is a sequence of independent normal random variables with mean 0 and variance σ2. Properties of the regression estimator of p are obtained under the assumption that p = ±1. Representations for the limit distributions of the estimator of p and of the regression t test are derived. The estimator of p and the regression t test furnish methods of testing the hypothesis that p = 1.
23,509 citations
TL;DR: In this paper, the authors consider a nonstationary vector autoregressive process which is integrated of order 1, and generated by i.i.d. Gaussian errors, and derive the maximum likelihood estimator of the space of cointegration vectors and the likelihood ratio test of the hypothesis that it has a given number of dimensions.
16,189 citations
13,292 citations
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TL;DR: This book focuses on the exploration of relationships among integrated data series and the exploitation of these relationships in dynamic econometric modelling, and the asymptotic theory of integrated processes is described.
Abstract: This book provides a wide-ranging account of the literature on co-integration and the modelling of integrated processes (those which accumulate the effects of past shocks). Data series which display integrated behaviour are common in economics, although techniques appropriate to analysing such data are of recent origin and there are few existing expositions of the literature. This book focuses on the exploration of relationships among integrated data series and the exploitation of these relationships in dynamic econometric modelling. The concepts of co-integration and error-correction models are fundamental components of the modelling strategy. This area of time-series econometrics has grown in importance over the past decade and is of interest to econometric theorists and applied econometricians alike. By explaining the important concepts informally, but also presenting them formally, the book bridges the gap between purely descriptive and purely theoretical accounts of the literature. The asymptotic theory of integrated processes is described and the tools provided by this theory are used to develop the distributions of estimators and test statistics. Practical modelling advice, and the use of techniques for systems estimation, are also emphasized. A knowledge of econometrics, statistics, and matrix algebra at the level of a final-year undergraduate or first-year undergraduate course in econometrics is sufficient for most of the book. Other mathematical tools are described as they occur.
2,050 citations