Traditional Export Demand Relation: A Cointegration and Parameter Constancy Analysis

This study empirically estimates the critical parameters of the aggregate export demand function for Jordan by using annual time series data (1970-2004) and by applying both Johansen-Juselius and Saikkonen-Lütkepohl multivariate cointegration procedures. The empirical results confirm that there exists a unique and significant long-run equilibrium relationship among exports, foreign income, relative export price, and domestic output. Our estimation results show that income elasticity is much larger than unity while export price elasticity is slightly above one. The long-run estimate of the export price elasticity reveal that the Marshall-Lerner condition is satisfied for Jordan and currency devaluation may be effective in improving Jordanian exports and her trade balance. Moreover, domestic output has a positive and significant impact on Jordanian exports. Finally, tests for the parameter constancy suggested by Hansen and Johansen (1999) reveal that the hypothesis of stable long-run elasticities could not be rejected.