Standard trade theory reveals that imports and exports are the product of relative resource
endowments and consumer preferences. In relevant literature, this pioneering direction was
discovered by Husted (1992) and Fountas and Wu (1999), to examine the cointegration between
exports and imports of the US. Husted (1992) found evidence in support of a long-run relationship,
while Fountas and Wu (1999) concluded with no long-run association between the two. Bahmani-
Oskooee (1994), revealed that Australian imports and exports are cointegrated with cointegrating
coefficient very close to unity, indicating that indeed Australia’s macroeconomic policies have
been effective in the long run. Bahmani-Oskooee and Rhee (1997) used quarterly data to model
exports and imports of Korea and found evidence of cointegration empirically, with positive
coefficient of exports. Arize (2002) utilized quarterly data for the period 1973-1998 for 50 OECD
and developing countries to investigate the same query. He found that for 35 out of 50 countries,
there was evidence of cointegration between exports and imports and 31 of 35 countries had a
positive export coefficient. Arize’s result on cointegration for the US differs from that of Fountas
and Wu (1999), but is consistent with the findings of Husted (1992).
However, compared to the latter, Arize (2002) found the export coefficient to be significantly
different from unity. Similarly, Narayan and Narayan (2004) concluded that exports and imports
for Fiji and PNG are cointegrated and suggested that for every one dollar acquired by exports,
the imports increased by 0.78 cents approximately. Irandoust and Ericsson (2004), confirmed
the existence of a long-run steady-state relationship between imports and exports. In case
studies for Malaysia, Mohammad and Tang (2000), Tang (2003), Ahmad et al. (2003)
and Choong et al. (2004) contributed additional empirical evidence on import-export
cointegration, followed by Cheong (2005) and Tang and Mohammad (2005), who included
Pakistan in their sample, but the results were inconclusive. The results of these studies were
inconclusive, except for Cheong (2005)1, because they did not directly investigate the
import-export relation and mostly employed the DOLS (Stock and Watson, 1988). Finally, elasticities
approach reveals that imports and exports respond to income and price effects, but contrarily,
domestic income increase was found to be associated with higher imports, while having no
impact on exports (Senhadji and Montenegro, 1999; and Pacheco-Lopez and Thirlwall, 2006). |
