Long-run price and income elasticities of demand for Hong Kong exports: a structural cointegrating VAR approach

This article revisits a system of export volume and price equations to estimate the long-run price and income effects in the demand for Hong Kong's exports. Using a recently developed restricted cointegrating VAR approach it tests theory-based restrictions and obtains estimates of the long-run structural coefficients. The estimation results provide supporting evidence for the theory-based restrictions and suggest that the demand for Hong Kong's exports is both price and income elastic. This article is therefore able to present a long-run model of Hong Kong's exports that is both theory and data consistent, and long-run elasticities that are economically interpretable. The short-run properties of the model are illustrated by means of persistence profiles, which confirm the cointegrating vectors tendency of convergence.