Modelling NIE exports: Aggregation, quantitative restrictions and choice of econometric methodology

The current debate regarding the robustness of estimates of export demand and supply elasticities for NIEs is examined by modelling manufactured exports from Korea. The results suggest that normalisation of the export demand function for price rather than quantity is an important issue in estimating export demand functions of small countries, and that estimates of export demand elasticities at high levels of aggregation are subject to potentially powerful biases, when the aggregate consists of categories which are subject to quantitative restrictions. If proper modelling procedures are followed, it is likely that the small country assumption will find far more empirical support than it has hitherto.