Determinants of international trade flows: The Case of Developing Countries

Abstract

The question of magnitude and the time path of the trade flows to changes in the exchange rates and to changes in the price level is of emitent practical importance. To assess the above proposition, a distributed lag structure is imposed on the relative prices and on the effective exchange rate as the determinants of trade flows. Then, import and export demand functions are estimated for a sample of developing countries, using the Almon procedure. The empirical findings appeared to sustain Orcutt's early conjecture that trade flows adjust differently to different price stimuli. More precisely, it was found that imports and exports reactions were quicker and the total response time was shorter when an exchange rate, rather than relative prices, caused a change in international prices.