A Structural Model for Developing Countries' Manufactured Exports

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Abstract
A dynamic structural econometric model is developed to analyze movements in manufactured exports and to capture lags in the adjustment to equilibrium. The model is estimated with pooled cross-section time-series data for a representative sample of fifteen developing countries grouped according to their export market power. The results suggest that prices, domestic productive capacity, and external economic activity are critical determinants of manufactured exports from developing countries. The structural parameter estimates are used to infer the effects of changes in destination country income, distinguishing between the short-run and long-run export volume and export revenue effects. The results indicate that domestic economic policies that promote investment and capacity in export-oriented activities are likely to play a key role in increasing foreign exchange earnings in developing countries, even if growth in external demand is slow.

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