I am estimating an export equation, where dependent variable is export and independent variables are exchange rates, external income and other controls. Each coefficient is an elasticity. The results of regression suggest that export is substantially sensitive to external income with elasticity coefficient higher than 6. How this finding can be explained, what are the possible underlying factors which force to such a high sensitivity? I think that this is because of lack in non-price competitiveness in export.

  • $\begingroup$ We'd need more detail. What data are you using? Time periods? Countries? etc. $\endgroup$ – Art Mar 5 at 8:06
  • $\begingroup$ I use time series data for US, and external income is export-weighted income of US main trading partners. $\endgroup$ – sane Mar 5 at 8:09
  • $\begingroup$ And you run level on level? The movements in countries' GDP and exports are likely to be huge compared to movement in FX. $\endgroup$ – Art Mar 5 at 8:13
  • $\begingroup$ No, I use $ln$ transformation in order to obtain elasticity. In literature it is common that elasticity of external demand varies from 1.5 to 4. But for my case it is 6, suggesting much more sensitivity. I would like to understand factors that can cause this relationship. Regarding econometric technique everything is clear. $\endgroup$ – sane Mar 5 at 8:20

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