Sensitivities of Import Demand and Export Supply in an Open Developing Economy: the Evidence from Taiwan, 1961-1994

This study examines the time variations in the elasticities of derived demand for imports and supply of exports regarding Taiwan's aggregate production. It is to identify the long run relationship between production behavior and development process. A translog cost function model is set up to estimate the elasticity series in 1961-94. A regression model incorporating spline time setting with economic variables is built for testing the variations. Empirical results indicate that the elasticity of import demand varies with foreign income and the elasticity of export supply varies with domestic production capacity. Major exogenous events are shown to have significant impacts on production decision. [F14]