Euroland's Trade with Third Countries: An Estimation Based on NIPA Data

One major shortcoming in Euroland's National Income and Product Accounts (NIPA) consists in the missing distinction between exports (imports) on the one hand and dispatches (arrivals) between the member states on the other hand. In this paper "true" NIPA trade is derived from official figures. The observation period only starts in 1989: 1 due to the availability of Eurostat export volume indices. Cointegration analysis is then applied to draw preliminary conclusions on price and income elasticities of Euroland's real exports. The initial equation system contains one cointegration relationship and is reduced to a parsimonious error correction model. Two versions of the latter are presented each characterized by one over-identifying restriction derived from economic theory. The real-exchange-rate elasticity in both the "constant-market-share" model 1 and the "constant-returns-to-scale" model 2 amounts to -0.6, and in the latter the response to the globalization variable (+0.6) is in line with the empirical observation of a declining share of Euroland in world trade.