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Impulse response analysis and Orcutt's hypothesis in trade: evidence from developing countries

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  • Mohsen Bahmani-Oskooee
  • Esmaeil Ebadi

Abstract

Orcutt's hypothesis in international economics implies that trade flows respond to exchange rate changes faster than to changes in relative prices. Most previous studies used import and export demand models and tested the hypothesis by imposing and comparing lag lengths on the exchange rate and relative prices. One recent study, however, employed impulse response of trade flows to one SD shock to the nominal exchange rate and one SD shock to relative prices and tested the Orcutt's hypothesis for several industrial countries. In this article we follow this study and test the hypothesis for six developing countries using impulse response analysis. Like the other study for industrial countries, we do not find much support for the hypothesis.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Esmaeil Ebadi, 2015. "Impulse response analysis and Orcutt's hypothesis in trade: evidence from developing countries," Applied Economics, Taylor & Francis Journals, vol. 47(53), pages 5739-5747, November.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:53:p:5739-5747
    DOI: 10.1080/00036846.2015.1058905
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    Cited by:

    1. Makram El‐Shagi & William C. Sawyer & Kiril Tochkov, 2022. "The income elasticity of import demand: A meta‐survey," Pacific Economic Review, Wiley Blackwell, vol. 27(1), pages 18-41, February.
    2. Esmaeil Ebadi, 2020. "Comparison of the Marshall-Lerner condition in OECD and Asian countries: new evidence from pooled mean group estimation," Economics Bulletin, AccessEcon, vol. 40(2), pages 1332-1348.
    3. Mohsen Bahmani-Oskooee & Nazif Durmaz, 2017. "Evidence on Orcutt's hypothesis using Turkish–US commodity trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 26(1), pages 25-44, January.

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