The Lahore Journal of Economics

10 : 1 (Summer 2005) pp. 49-64

Demand and Supply of Exports in
Pakistan
__
A Disequilibrium Model
Mohammad Afzal
*
Introduction
Both single-equation models !outha"ar and #agee
(1969)$ %aq&i et al (19'()$ Bahmani-)s"ooee (19'6)* and
simultaneous equation models +han (19,4)$ -oldstein
and +han (19,')$ .ri/e (19'6)$ Balassa et al (19'9)$ .n0ar
(19'5) +han and Saqi1 (199() and .2/al (2001)* ha&e
1een used to stud3 e4port 1eha&ior in de&eloped and
underde&eloped 5ountries. -oldstein and +han (19,')*
ha&e in&estigated the pri5e responsi&eness o2 e4port
demand and e4port suppl3 o2 eight industrial 5ountries 2or
the period 1955-,0 using 1oth equili1rium and
disequili1rium models. 6he studies on the 1eha&ior o2
7a"istan8s e4ports %aq&i et al (19'()$ .n0ar (19'5)$ +han
and Saqi1 (199() and .2/al (2001)* ha&e not in&estigated
the disequili1rium aspe5t o2 e4ports8 response.
7a"istan em1ar"ed on &igorous trade li1erali/ation
and e4port promotion poli5ies in the earl3 1990s 2ollo0ing
the e4ample o2 the .sian 6igers and other de&eloping
5ountries to ma"e the e5onom3 more e22i5ient and
5ompetiti&e. Be2ore this import su1stitution remained a
dominant de&elopment strateg3 during the past de5ades.
6he purpose is to see ho0 e4ports respond to the d3nami5s
o2 demand and suppl3 o2 e4ports. 9t ma3 help to e4amine
the 1eha&ior and per2orman5e o2 e4ports to get an insight
2or poli53 ma"ing.
*
Associate Professor, Department of Economics, Gomal University, D.I.Khan
Pakistan
Muhammad Afzal
6his stud3 is important and desira1le in order to
&ie0 the ad:ustment o2 not onl3 aggregate e4ports 1ut
also o2 other 5ategories o2 e4ports 7rimar3$ #anu2a5tured
and Semi-#anu2a5tured* 1e5ause the importan5e o2 the
5omposition o2 e4ports 2or e5onomi5 gro0th has 1een
emphasi/ed in the literature +a&oussi (19'4)$ ;ollar
(1992)$ +han and Saqi1 (199()$ .2/al (2001)*. +a&oussi
(19'4)* in&estigated ho0 5ommodit3 5omposition o2
e4ports a22e5ts the relationship 1et0een e4ports and
e5onomi5 gro0th 2or a sample o2 ,( lo0 and middle-
in5ome 5ountries 2or the period 1960-,'. !e 5on5luded
that the le&el o2 de&elopment alread3 a5hie&ed and the
5omposition o2 e4ports signi2i5antl3 a22e5ts the relationship
1et0een e4ports and -;7. .2/al (2001)* has 5on5luded
that sin5e primar3 e4ports ha&e negati&e 0orld in5ome
elasti5it3 &is-<-&is manu2a5tured and semi- manu2a5tured
e4ports$ a desira1le strateg3 0ould 1e to promote
manu2a5tured and semi- manu2a5tured e4ports.
6he signi2i5an5e o2 the ;isequili1rium model lies in
the 2a5t that it thro0s light on ho0 the lagged 3ear
e4ports in2luen5e the 5urrent 3ear e4ports 1e5ause past
1eha&ior o2 e4ports ma3 ser&e as a guide as 0ell as
in5enti&e 2or the 5urrent period.
6here2ore$ 2ollo0ing -oldstein and +han (19,')* the
o1:e5ti&e o2 this paper is to in&estigate the responsi&eness
o2 1oth e4port demand and e4port suppl3 2or aggregate
e4ports$ as 0ell as 7rimar3$ #anu2a5tured and Semi-
manu2a5tured e4ports o2 7a"istan 2or the period 19,2
-200(. 6he rest o2 the paper is stru5tured as 2ollo0s.
Se5tion 99 des5ri1es the model and data sour5es. Se5tion 999
1rie2l3 des5ri1es the e5onomi5 5lassi2i5ation o2 7rimar3$
Semi-manu2a5tured and #anu2a5tured e4ports. =stimation
results and dis5ussion are gi&en in Se5tion 9> and Se5tion
> is de&oted to 5on5lusions.
II Model and Data Sources
6he demand 2or e4ports depends on the 0orld or
important trade partners8 in5ome and also on the
5ompetition o2 domesti5 e4port pri5es 0ith the 0orld or
5
0
Demand and Supply of Exports in Paistan
important trade partners8 e4port pri5es. Similarl3$ suppl3
o2 e4ports is determined 13 the domesti5 pri5e o2 e4ports$
domesti5 pri5e le&el and domesti5 in5ome. 6here2ore$ in
log
?
linear 2orm equations 1 and 2 are the demand (@
d
)
and suppl3 (@
s
) equations 2or e4ports. 9t is assumed that @
d
A@
s
. 6his is the =quili1rium model. 6he same equations
also appl3 to the de5omposition o2 e4ports into 7rimar3
@
p
*$ #anu2a5tured @
m*
$ and Semi- manu2a5tured @
sm
*
e4ports.
Bn@
d
A
0
C
1
Bn7D C
2
BnEF 1*
Bn@
s
A
0
C
1
BnEE C
2
BnG

2*
Sin5e the equations are spe5i2ied in logarithm$ the
5oe22i5ients are elasti5ities. 6he e4pe5ted signs o2 the
5oe22i5ients in the e4port demand equation are
1
H0$ and

2
I0 and the e4pe5ted signs o2 the 5oe22i5ients in suppl3
equation are:
1
I0$ and
2
Io.
Fhere
@
d
Areal &alue o2 e4ports demanded
@
s
Areal &alue o2 e4port suppl3
@ Atotal e4ports
@
p
Areal &alue o2 7rimar3 e4ports
@
m
Areal &alue o2 #anu2a5tured e4ports
@
sm
Areal &alue o2 Semi-manu2a5tured e4ports
D>@
7
ADnit &alue o2 e4ports o2 7a"istan in DS dollars
D>@
0
ADnit &alue o2 e4ports o2 0orld in DS dollars
7D AD>@
7J
D>@
0
EF A0orld real in5ome
7@ ADnit &alue o2 e4ports o2 7a"istan in domesti5
5urren53 rupees Ks*
F79 AFholesale 7ri5e 9nde4 F79* o2 7a"istan
51
Muhammad Afzal
EE A7@ J F79

G Areal -;7 o2 7a"istan
9n the ;isequili1rium model the e4ports demand and
suppl3 equations are as under:
Export Demand Equati ons
Bn@
d
A
0
C
1
Bn7D C
2
BnEF C
(
Bn@
t-1
1-.*

1$

2
and

(
are respe5ti&el3 relati&e pri5e$ real 0orld
in5ome$ and lagged e4ports @
t-1
* elasti5ities. 6he e4pe5ted
signs o2 the 5oe22i5ients are:
2
>0$

(
> 0$ and
1
< 0. 6he
in5lusion o2 lagged dependent &aria1les in the equation 1-
. implies a partial ad:ustment pro5ess. 6hat is the 5hange
in e4ports is related to the di22eren5e 1et0een the demand
2or e4ports in period t and a5tual e4ports in period t-1.
6here2ore$
Bn@
t
A Bn@
t -
Bn@
t-1
* 1-B*
Fhere

is the 5oe22i5ient o2 ad:ustment assumed positi&e*
and is the 2irst di22eren5e operator$ and Bn@
t
A

Bn@
t -
Bn@
t-
1
*. 6his applies to 1oth demand and suppl3 equations 2or
e4ports in order to a&oid repetition. 6he ad:ustment 2un5tion
1-B* assumes that the quantit3 o2 e4ports ad:usts to
5onditions o2 e45ess demand in the rest o2 the 0orld and
there2ore$ the pri5e o2 e4ports is determined in the e4porting
5ountr3 -oldstein and +han (19,')$ p.2,,*.
Su1stitute 1-. in equation 1-B$ 0e get
Bn@
t
AL
1
C L
2
Bn7D
C
L
(
Bn EF CL
4
Bn@
t-1
(*
Fhere
L
1
A
0
M L
2
A
1M
L
(
A
(
M and L
4
A
1-
Based on the e4pe5ted signs o2 the parameters in
equation 1-.$ 0e 0ould e4pe5t that

L
2
<0$ L
(
> 0$ and L
4
>
0. 6he a&erage time lag in the ad:ustment o2 e4ports 5an
5
!
Demand and Supply of Exports in Paistan
1e 5al5ulated 2rom the parameters o2 the equation ( as (1-
L
4
)
-1
or 1J(1-) and this applies to all equations that 2ollo0
1elo0.
Export Suppl y Equati ons
9n the ;isequili1rium model the 2ollo0ing is the
e4port suppl3 2un5tion 2or 7a"istan in terms o2 the
traditional 2ormat:
Bn@s A
0
C
1
BnEE C
2
BnG C
(
ln@s
t-1
2-.*

1$

2
and
(M
are respe5ti&el3 relati&e pri5e 2or e4port
suppl3$ real -;7$ and lagged e4port suppl3 elasti5ities.
6he e4pe5ted signs o2 the 5oe22i5ients are:
1
> 0M
2
> 0$
and
(
> 0. Bi"e the e4port demand equation$ 0e su1stitute
equations 2-. in equation 1-B and get the 2ollo0ing
equation:
Bn@s Ad
0
C d
1
BnEE C d
2
BnG C d
(
ln@s
t-1
4*
Fhere
;o A
0
d
1
A
1$
d
2
A
2$
and d
(
A 1-
Based on the signs in equation 2-. the e4pe5ted signs are:
d
1
>0$ d
2
>0$ and d
(
>0$
Probl ems in !ime Seri es Data
.uto5orrelation and Spurious Kegression are the
ma:or pro1lems in time series data. -ranger and %e0 Bold
(19,4)* ha&e suggested that an "
!
> d is a #ood rule of
thum$ to suspect that the estimated re#ression suffers
from spurious re#ression. Sin5e auto5orrelation is generall3
2ound in time series data$ 0here ne5essar3 auto5orrelation
has 1een 5orre5ted. 6here2ore$ it is assumed that
distur1an5es 2ollo0 2irst order autoregressi&e .K (1)*
s5heme. .uto5orrelation has no uni&ersal 5ure. ;i22erent
methods suggested in =5onometri5s literature ha&e their
o0n limitations -u:arati (1995)*. 6he 2irst order
53
Muhammad Afzal
autoregressi&e pro5ess 2or the error terms in the modes is
as 2ollo0s:

t
A
t-1
C
t
(-.*

6he parameter is the 2irst order serial 5orrelation
5oe22i5ient and -1HH1. 6he .K (1) model in5orporates the
residual 2rom the past o1ser&ation into the regression
model 2or the 5urrent o1ser&ation. 6he
t
is distri1uted as %
(0$
2

) and is independent o2 other errors o&er time as 0ell

as 1eing independent o2 M and
t
is distri1uted as % (0$
2

)
1ut is not independent o2 other errors o&ertime. Se&eral
5onsiderations in o1taining 5onsistent estimates in the 5ase
o2 auto5orrelation in 6SBS are dis5ussed in Nair (19,0)*.
6he ;ur1in-Fatson d-statisti5 ma3 not 1e used to
dete5t 2irst order serial 5orrelation in autoregressi&e models
1e5ause i2 0e routinel3 5ompute the d-statisti5 2or su5h
models$ there is a 1uilt-in 1ias against dis5o&ering the 2irst
order serial 5orrelation. ;espite this man3 resear5hers
5ompute the d-&alue 2or 0ant o2 an3thing 1etter -u:arati
(1995)$ p. 605*. 6here2ore$ 0e ha&e used the d-statisti5
0here lagged &alues ha&e 1een used. =45ept equations 6
and , 2or semi-manu2a5tured e4ports$ other d-statisti5 is
reasona1l3 a55epta1le. #oreo&er in the Simultaneous
equation model 1oth K
2
and ;F are less 5lear.
Lo5hrane-)r5utt iterati&e te5hnique has 1een used
to ta"e 5are o2 the auto5orrelation pro1lem that is o2ten
used in pra5ti5e see -u:arati (1995)$ p.4(6*. ;F su22ers
2rom some limitations. 6here2ore$ the O-statisti5 and the
Breus5h--od2re3 B# test are pre2erred in most
appli5ations. But these are appli5a1le in large sample
5ases 50 or 60 o1ser&ations at least*. But this is not the
5ase in 2inite or small samples. #oreo&er$ there are
pro1lems in sele5ting the appropriate lag length.
6here2ore$ 1oth statisti5s reported in this stud3 are
5om2orta1le. #ore re5ent Lointegration and =rror
Lorre5tion te5hniques o2 time series e5onometri5s ha&e
not 1een used as 0e are dealing 0ith a Simultaneous
5
%
Demand and Supply of Exports in Paistan
equation model and these te5hniques ha&e not 1een
de&eloped 2or this model.
6he data on -;7$ aggregate$ 7rimar3$ Semi-
manu2a5tured and #anu2a5tured e4ports ha&e 1een ta"en
2rom the Paistan Economic Sur&ey &arious issues*. Keal
0orld 9n5ome data 0ere o1tained 2rom Forld 6a1les
&arious issues*. 6he data regarding e4port unit &alue inde4
2or 1oth 7a"istan and the 0orld in DSP$ 0orld Fholesale
7ri5e 9nde4 F79*$ unit &alue o2 e4ports in domesti5
5urren53 ha&e 1een 5olle5ted 2rom 'nternational (inancial
Statistics 3ear1oo"s &arious 3ears*. 6he aggregate as 0ell
as the a2orementioned 5ategories o2 e4ports 0ere de2lated
13 unit &alue indi5es o2 e4ports 1990A100*. 6he period o2
the stud3 is 2rom 19,2-200(.
III Economi c "lassificati on of Exports
6he 5hanging 5omposition o2 2oreign trade o2 an
e5onom3 re2le5ts the stru5tural 5hanges that ha&e ta"en
pla5e o&er the 3ears. 6he share o2 primar3 5ommodit3
e4ports 0as 4'Q in 19,4-,5. .2ter this 3ear the de5lining
trend o2 primar3 5ommodities e4ports is &isi1le. 9t 0as as
lo0 as 20Q in 19'9-90$and 11Q in 1996-9,$ 2001-02 and
2002-0( 6a1le1*. 6he share o2 semi-manu2a5ture sho0s a
mi4ed trend during the period under re&ie0. 9ts share 0as
2,Q in 19,1-,2 1ut 2ell to 11Q in 19'0-'1 1e5ause some
o2 the semi-manu2a5tured goods 0ere pro5essed to higher
stages o2 produ5tion and 0ere e4ported as 2inished
produ5ts and in5reased to 24Q in 19'9-90. ;uring 1990s
its share in5reased to 25Q in 1994-95 1ut 2ell to 1,Q in
199,-9' and 11Q in 2002-0(. 6he manu2a5turing goods
e4ports ha&e e4hi1ited an in5reasing trend. 9ts share
in5reased 2rom 29Q in 19,1-,2 to ,'Q in 2002-0(. 6his
indi5ates a health3 trend in the 5omposition o2 7a"istan8s
e4ports o&er the 3ears. -ro0ing importan5e o2
manu2a5tured e4ports has 1een stressed in the literature
as mentioned a1o&e.
!abl e# $% Economi c "lassi fi cati on of Export s &'(
)$*+, # ,--./
55
Muhammad Afzal
0ear Exports
Primary
commodi ty
Semi#
manuf act ur e
Manuf act
ure
19,1-
,2
45 2, 29
19,4-
,5
4' 1( (9
19,'-
,9
(2 21 50
19'0-
'1
44 11 45
19'(-
'4
(0 14 5,
19'5-
'6
(5 16 49
19'9-
90
20 24 56
1992-
9(
15 21 64
1996-
9,
11 21 6'
199,-
9'
1( 1, 69
199'-
99
12 1' ,0
2000-
01
1( 15 ,2
2001-
02
11 14 ,5
2002-
0(
11 11 ,'
Source: Paistan Economic Sur&ey 199,-9' and 2002-04
(Statisti5al appendi4)*
I1 2esults and Discussi on
6SBS 60o Stage Beast Square* estimated all the
said equations on aggregate as 0ell other 5ategories o2
e4ports. 6he estimation results 2or aggregate e4ports
5
)
Demand and Supply of Exports in Paistan
demand 2or E*uili$rium and Dise*uili$rium models are as
under:
E*uili$rium Model
Bn@
d
A -1'.21 -1.14 Bn7D C 1.6( BnEF
1*
(-1.'0)RR (-1.,')RR (2.69)R
R

! ".#$ D.%. ! &.''

Dise*uili$rium Model
Bn@
d
A

-2.'9 - 0.25 Bn7D C 0.2' BnEF C 0.'0 Bn@
t-
1
(*
(-0.(() (-0.62) (0.49)
(5.5')R

K
2
A 0.95 ;.F A 1.6,
Note: 6he num1er in parentheses in all the equations are
t-statisti5s 0here R stands 2or 5 Q and RR 2or 10Q le&els o2
signi2i5an5e respe5ti&el3.
6he signs o2 the relati&e pri5e &aria1le and the 0orld
in5ome are 5orre5t and signi2i5ant =quation 1* 2or the
aggregate e4ports demand. 6his is in agreement 0ith
+han8s (19,4)* results that also o1tained signi2i5ant pri5e
(-1.'4) and 0orld in5ome (0.92) 5oe22i5ients. Sin5e the
estimated pri5e elasti5it3 is greater than unit3$ this implies
a 2airl3 large response o2 e4ports to 5hanges in relati&e
pri5es. 9n si4 o2 the eight industrial 5ountries$ -oldstein
and +han (19,')* o1tained pri5e elasti5it3 greater than
unit3 in the equili1rium model. 6he estimated short run
demand 2un5tion equation (* sho0s that the short run
pri5e and 0orld in5ome elasti5ities are not signi2i5ant. 6he
mean time lag is slightl3 greater than one 3ear.
6he short run pri5e elasti5it3 is smaller in a1solute
terms than the equili1rium model elasti5it3. -oldstein and
+han (19,')* had similar results 2or eight industrial
5ountries. But unli"e them$ short run 0orld in5ome
elasti5it3 0.2'* is smaller than the =quili1rium model
in5ome elasti5it3 1.6(*. 6his result is a55ording to
57
Muhammad Afzal
e4pe5tations and the real 0orld e4perien5e 1e5ause B;Ls
2a5e lo0-in5ome elasti5it3 2or their e4ports as the3
generall3 e4port primar3 produ5ts$ 0hile the demand 2or
the industrial 5ountries does not su22er 2orm this pro1lem.
6his 5on2irms the 2a5t that the 0orld demand 5onditions
pla3 a pi&otal role in 5ontri1uting to the promotion o2
e4ports. 6rade optimists tend to ignore this 2a5t.
Nor aggregate e4port demand the 5oe22i5ient o2
ad:ustment is 0.20 impl3ing that 20Q o2 the
dis5repan53 1et0een the desired and a5tual demand 2or
e4ports is eliminated in a 3ear. 6he mean time lag in the
ad:ustment o2 total e4ports is equal to
-1
that 5an 1e
5al5ulated 2rom the parameters o2 the equation. Sin5e L
(
A 1- and there2ore$
-1
A (1-L
(
)
-1
A (1-0.'0)
-1
A 0.20.
#oreo&er$ the mean time lag in the ad:ustment o2
e4ports to 5hanges in independent &aria1les is 2i&e
3ears. 6his is rather a longer and unrealisti5 lag and
sho0s the limitations o2 the partial ad:ustment model.
-oldstein and +han (19,')* reported mean time lag that
ranges 2rom one quarter 2or DS. and o&er 2i&e quarters
2or -erman3 as the3 used quarterl3 data. Bagged 3ear
e4ports equation (* ha&e signi2i5ant in2luen5e on the
demand 2or 5urrent e4ports. +han (19,4)* also got
signi2i5ant lagged 3ear e4ports and not signi2i5ant 0orld
in5ome
A33re3at e export supply
E*uili$rium Model
Bn@s A -2.61

C 0.29 BnEE C 1.2' BnG
2*
(-(.44) (1.54) (15.06)R
K
2
A 0.95 ;.F. A 1.'0
.ggregate e4port suppl3 2un5tion =quation 2* is
positi&el3 sloped though relati&e pri5e is not signi2i5ant.
6his means that 7a"istan8s e4port produ5tion is inelasti5
0ith respe5t to relati&e pri5es 1ut highl3 elasti5 0ith
respe5t to domesti5 produ5tion as the 5oe22i5ient o2 the
5
+
Demand and Supply of Exports in Paistan
produ5tion 5onditions e45eeds unit3. +han and Saqi1
(199()* also o1tained positi&e 1ut not signi2i5ant
5oe22i5ient (0.10). =ight industrial 5ountries studied 13
-oldstein and +han (19,')*$ e45ept Sapan$ the other
se&en 5ountries had suppl3 pri5e elasti5it3 greater than
one and 2or Sapan it 0as &er3 high. 6he domesti5 in5ome
elasti5it3 (1.2') in aggregate e4ports suppl3 =quation 2*
is less than 0orld in5ome elasti5it3 (1.6() 2or e4port
demand =quation 1* impl3ing that 7a"istan8s e4ports
are more dependent and in2luen5ed 13 2oreign
5onditions than 13 the domesti5 e5onomi5 situation.
Disequilibri um model
Bn@s A -1.4'

C 0.14 BnEE C 0.,( BnG C 0.42 Bn@s
t-
1
4*
(-2.(2) (1.14) ((.40)R (2.25)R
K
2
A 0.96 ;.F. A 1.46
6he estimation results sho0 that in the
disequili1rium model 2or aggregate e4ports suppl3$ pri5e
and in5ome elasti5ities are smaller than the equili1rium
model equation 2*. Nor e4port suppl3 in the disequili1rium
model$ 1- A 0.42$ and thus A 0.5'. 6his means that
5'Q o2 the e4port suppl3 ad:usts 0ithin one 3ear.
6here2ore$ the ad:ustment o2 the total e4ports suppl3 is
1etter than total e4ports demand 20Q*.
Primary Exports Demand and Suppl y
E*uili$rium Model
Bn@p
d
A 9.9, - 1.2' Bn7D - 0.2, BnEF
1*
(2.05)R (-4.16)R (-0.9()
K
2
A 0.6( ;.F. A 1.55
Dise*uili$rium Model
Bn@p
d
A 1.56 - 0.(4 Bn7D - 0.02 BnEF C 0.54
Bn@
pt-1
(*
59
Muhammad Afzal
(0.25) (-0.6() (-0.005) (2.10)R
K
2
A 0.52 ;.F. A 2.14
Nor the demand equation =quation 1* the relati&e
pri5e &aria1le is signi2i5ant and e45eeds unit3 impl3ing a
2airl3 large response o2 primar3 e4ports to 5hanges in
relati&e pri5es. Forld in5ome is not-signi2i5ant 1ut
negati&e supporting B;Ls 5omplained o2 &er3 lo0-in5ome
elasti5it3 2or their primar3 produ5t e4ports. 6he 5oe22i5ient
o2 ad:ustment 1- A 0.54$ so A 0.46 that is 46Q 7rimar3
e4ports are ad:usted in a 3ear. 9n this model$ li"e
aggregate e4ports relati&e pri5e and 0orld in5ome
elasti5ities are smaller than the equili1rium model. 6he
estimation results 2or E*uili$rium and Dise*uili$rium
Models 2or primar3 e4ports suppl3 is:
E*uili$rium Model - ,p supply
Bn@ps A 2.55

C 0.62 BnEE C 0.(1 BnG 2*
(2.11)R (0.6() (2.(()R

K
2
A 0.(9 ;.F. A 1.'0
Dise*uili$rium Model ,p supply
Bn@ps A 1.'4

C 0.(0 BnEE C 0.1( BnG C
0.4(Bn@p
t-1
4*
(1.45) (0.(6) (1.06) (2.(2)R
K
2
A 0.4, ;.F. A 1.96
@p suppl3 2un5tion is positi&el3 sloped 1ut not
signi2i5ant equation 2*. 6he positi&e and not signi2i5ant
5oe22i5ient implies that @p e4port pri5es do ha&e a role in
the suppl3 o2 @p 1ut are not o2 mu5h signi2i5an5e$ 1e5ause
7a"istan does not en:o3 a signi2i5ant share in 0orld
e4ports.
.ri/e (19'6)* o1tained positi&el3 sloped e4port
suppl3 2un5tions in se&en out o2 eight .2ri5an 5ountries.
+han and Saqi1 (199()* ha&e reported positi&e 1ut not
signi2i5ant 5oe22i5ient 2or @p suppl3. #oreo&er$ domesti5
e5onomi5 5onditions represented 13 -;7 ha&e dominant
)
0
Demand and Supply of Exports in Paistan
in2luen5e on @p suppl3. 9n the ;isequili1rium model
equation 4*$ the results are a55ording to e4pe5tations 2or
@p suppl3. 6he pri5e and in5ome elasti5ities are smaller
5ompared to the =quili1rium model equation 2* 2or @p.
6he 5oe22i5ient o2 ad:ustment is 1- A 0.4( and thus A
0.5, that implies that 5,Q primar3 e4port suppl3 is
ad:usted 0ithin a 3ear.
Manuf actur ed Exports Demand and Suppl y
E*uili$rium Model
Bn@m
d
A -41.'1 - 0 62 Bn7D C 2.'9 BnEF
1*
(-5.'')R (-1.2() (6.'()R
K
2
A 0.9, ;.F. A 1.92
Dise*uili$rium Model
Bn@m
d
A -'.06 - 1.0( Bn7D C 0.22 BnEF C 0.(6
Bn@
mt-1
(*
(-2.51)R (-2.'1)R ((.,1)R (1.95)RR
K
2
A 0.92 ;.F. A 1.90
Kelati&e pri5e 5oe22i5ient and 0orld in5ome ha&e
5orre5t and e4pe5ted signs 2or @m demand =quation 1*.
#oreo&er$ unli"e @ and @p the relati&e pri5e &aria1le is not
signi2i5ant 2or @m. .n0ar (19'()* also o1tained negati&e
and not signi2i5ant 5oe22i5ient (-1.(') 2or the relati&e pri5e
&aria1le 2or @
m
demand 2or the period 1960-'0. Nor man3
de&eloping 5ountries relati&e pri5es do not seem to ha&e a
signi2i5ant e22e5t on the e4ports o2 these 5ountries +han
(19,4)$ .ri/e (19'6)*. 9n the ;isequili1rium model 2or @
m
$
the 5oe22i5ient o2 relati&e pri5e and 0orld in5ome are
signi2i5ant 0hile 0orld in5ome elasti5it3 is smaller than the
=quili1rium model. 6his means that 0hen past 3ear
e4ports are ta"en into a55ount relati&e pri5e o2 @m
assumes greater importan5e and sho0s reasona1l3 large
response o2 @
m
to pri5es. 6he 5oe22i5ient o2 ad:ustment 2or
@
m
demand is 1- A0.(6 and there2ore$ ,4Q-#anu2a5tured
e4ports are ad:usted in one 3ear.
61
Muhammad Afzal
E*uili$rium Model - ,m supply
Bn@
m
sA -9.12

C 0.(6 BnEE C 1.,4 BnG 2*
(-11.20) (0.42) (19.12)R
K
2
A 0.96 ;.F. A 1.'2
Dise*uili$rium Model
Bn@
m
sA -,.(6

C 0.20 BnEE C 1.40 BnG C 0.20 Bn@
mt-1

4*
(-2.2') (0.,5) (2.(,)R (0.5,)
K
2
A 0.9, ;.F. A 1.62
6he relati&e pri5e 5oe22i5ient is positi&e 1ut not
signi2i5ant 0hereas the domesti5 in5ome 5oe22i5ient is
positi&e and highl3 signi2i5ant 2or @
m
suppl3. +han and
Saqi1 (199()* o1tained positi&e 1ut not signi2i5ant &alue
2or the pri5e &aria1le 2or @
m
suppl3. . 5omparison o2 the
t0o in5ome elasti5ities 2or @
m
equation 1 and equation 2*
suggests that manu2a5tured e4ports are more dependent
on 0orld in5ome rather than on -;7 as a pro43 2or
domesti5 e5onomi5 a5ti&ities.
Bagged @
m
suppl3 is not signi2i5ant in the
;isequili1rium model. But 1oth pri5e and in5ome
elasti5ities are smaller than the =quili1rium model. #ean
time lag 2or @
m
suppl3 is '0Q. 6hat is '0Q ad:ustment
ta"es pla5e in one 3ear. Sin5e the &alue o2 is 5loser to
one$ it means that ad:ustment in the @
m
ta"es pla5e
sharpl3. 6he &alues o2 ad:ustment 5oe22i5ients 2or
.ggregate$ 7rimar3 and #anu2a5tured e4ports demand
and suppl3 thro0 adequate light on the ad:ustment o2
these e4ports. 6he 5omparison o2 ad:ustment 5oe22i5ients
indi5ates @
m
per2orms 2airl3 in terms o2 suppl3. .nd
supports the emphasis on promoting @
m
in the literature.
Equilibrium Model in Price Separati on format for
4sm demand
Fe o1tained statisti5all3 in2erior$ une4pe5ted and
unrelia1le results 2or demand and suppl3 o2 @sm in 1oth
the =quili1rium and ;isequili1rium models equations 1-4*.
)
!
Demand and Supply of Exports in Paistan
Fe$ there2ore$ separated the relati&e pri5e 5oe22i5ient 7D*
o2 e4port demand into Dnit &alue o2 e4ports o2 7a"istan
D>@p* in DS dollars and Dnit &alue o2 =4ports o2 the 0orld
D>@0* in DS dollars and similarl3 the relati&e pri5e
5oe22i5ient EE* o2 e4port suppl3 o2 7a"istan 7@* into
domesti5 5urren53 and the 0holesale pri5e inde4 F79* in
1oth models. Fe 5all it the 7ri5e Separation 2ormat.
6here2ore$ the equili1rium model is:
Bn@
smd
A
0
C
1
BnD>@p C
2
BnD>@0 C
(
BnEF

5*
(
1$

2
and
($
are respe5ti&el3

e4port pri5e inde4 o2

7a"istan
in DS dollars$ e4port pri5e inde4 o2 the 0orld in DS dollars
and 0orld real in5ome elasti5ities. 6he e4pe5ted signs o2
the 5oe22i5ients in equation 5 are:
1
<0
5

2
>05 and
(
>0.
6he Dise*uili$rium model 2or @sm demand is:
Bn@
smd
A
0
C
1
BnD>@p C
2
BnD>@0 C
(
BnEF C

4
@
t-1
1--*
Bi"e the e4port demand equation$ 0e su1stitute
equations 1-- in equation 1-B and get the 2ollo0ing
equations:
Bn@
sd
A g
0
C g
1
BnD>@p C g
2
BnD>@0 C g
(
BnEF C g
4
@
t-1

6*
Fhere
g
0
A
0
$ g
1A

1$
g
2
A
2$
g
(
A
(
and g
4 A
1-

6he e4pe5ted signs are:
g
1
< 0
5


g
2
>0 g
(
>0 and g
4
>0.
6he estimation results 2or the =quili1rium and
;isequili1rium models are as under:
Bn@
sd
A -20.,5 - (.'5 BnD>@p C 1.'9 BnD>@0 C
2.10BnEF 5*
63
Muhammad Afzal
(-1.14) (-2.2()R (1.52) (1.'')RR
K
2
A 0.4( ;F A1.55
Dise*uili$rium Model
Bn@
sd
A-2.10 - 1.92 BnD>@p C 0.'5 BnD>@0 C 0.52 BnEF
C 0.6'@
t-1
6*
(-0.11) (-1.20) (0.,9) (0.(,)
(1.9')R
K
2
A 0.60 ;F A1.(4
7ri5e separation 2ormat gi&es desira1le results 2or
@sm demand. 6his suggests that pri5e separation 2ormat is
more suita1le 2or @sm demand than the traditional 2ormat.
6he merit o2 this 2orm is that it sho0s the relati&e
signi2i5an5e o2 the domesti5 and 0orld e4port pri5es. 6he
signi2i5ant nature o2 the domesti5 e4port pri5es in
equation 5 sho0s the importan5e o2 domesti5 e4port
pri5es in semi-manu2a5tured e4ports demand. 6he 0orld
real in5ome has the 5orre5t and e4pe5ted sign and is
signi2i5ant at the 10Q le&el o2 signi2i5an5e. 9n the
disequili1rium model equation 6*$ the 5oe22i5ients o2
domesti5 e4port pri5es$ 0orld e4port pri5es$ and 0orld real
in5ome are smaller than the equili1rium model su5h as
aggregate and other 5lassi2i5ation o2 e4ports. 6he
5oe22i5ient o2 ad:ustment 2or @sm demand is 1- A0.6' and
thus (2Q semi-manu2a5tured e4ports are ad:usted in one
3ear.
Equilibrium Model# Price Separati on 6ormat for 4sm
Suppl y
=quili1rium #odel o2 the @sm Suppl3 in 7ri5e
Separation Normat is as 2ollo0s:
Bn@s A
0
C
1
Bn7@ C
2
Bn F79 C
(
BnG


,*

1$

2$

(
and
4
are respe5ti&el3 e4port pri5es o2 7a"istan
in domesti5 5urren53 rupees Ks*M F79 and real -;7
elasti5ities. 6he e4pe5ted signs o2 the 5oe22i5ients 2or the
e4port suppl3 pri5e and -;7 are positi&e$ 0hile 2or the
)
%
Demand and Supply of Exports in Paistan
domesti5 le&el it is negati&e. 6he e4pe5ted signs o2 the
5oe22i5ients are:
1
> 0$
(
> 0 and
2
<0. 6he
;isequili1rium model in pri5e separation 2ormat 2or @sm
suppl3 is as under:
Bn@
ms
A
0
C
1
Bn7@
pa"
C
2
Bn F7
9pa"
C
(
BnGpa" C
4
Bn@s
t-1
1-L*
Bi"e the e4port demand equation$ 0e su1stitute
equations 1-L in equation 1-B and get the 2ollo0ing
equations:
Bn@
ms
A 2
0
C 2
1
Bn7@
pa"
C 2
2
Bn F79
pa"
C 2
(
BnG

C 2
4
Bn@s
t-1

,*
Fhere
2
0
A
0
2
1A

1$
2
2
A
2$
2
(
A
(
and 2
4 A
1-

6he e4pe5ted signs are:
2
1
>0$ 2
2
<0$ 2
(
> 0 and 2
4
>0.
6he estimation results o2 equation , and ' are:
Bn@
ss
A -(5.91 C 0.90 Bn7@

- (.92 Bn F79 C 6.1' BnG
,*
(-2.44)R (2.0()RR (-2.20)R (2.60)R
K
2
A 0.4' ;F. A0.''
Dise*uili$rium Model
Bn@s A -15.6' C 0.02 Bn7@ - 1.1( Bn F79 C 2.69 BnG C
0.41

Bn@s
t-1
'*
(-(.42) (0.0') (-2.02)R ((.45)R
(2.(0)R
K
2
A 0.95 ;.F. A 2.0'
65
Muhammad Afzal
Bi"e the demand equation$ pri5e separation 2ormat
also gi&es agreea1le results 2or @sm suppl3. 6he signs o2
the 5oe22i5ients are 5orre5t. ;omesti5 produ5tion
5onditions represented 13 real -;7 are positi&e and
highl3 signi2i5ant. 6he domesti5 pri5e inde4 is negati&e
and signi2i5ant suggesting that lo0 in2lation is e4pe5ted
to in5rease e4ports. 6he suppl3 pri5e o2 e4ports is
positi&e 1ut not signi2i5ant impl3ing the pri5e-ta"ing
nature o2 7a"istan8s e5onom3. 6he 5oe22i5ients o2 the
;isequili1rium model are smaller li"e other 5ategories o2
e4ports than the =quili1rium model. 6he 5oe22i5ient o2
ad:ustment 2or @sm suppl3 is 1- A 0.41 and thus 59Q
@sm are ad:usted 0ithin one 3ear.
1 "oncl usi ons
6he estimated pri5e elasti5it3 2or aggregate and
primar3 e4ports demand in the =quili1rium model is
greater than unit3 and implies a 2airl3 large response o2
these e4ports to 5hanges in relati&e pri5es$ 0hile 2or
manu2a5tured e4ports this response is inelasti5. 7a"istan8s
e4port suppl3 is inelasti5 0ith respe5t to relati&e pri5es 1ut
highl3 elasti5 0ith respe5t to domesti5 produ5tion as the
5oe22i5ient o2 the produ5tion 5onditions e45eeds unit3 2or
aggregate as 0ell as 2or other 5ategories o2 e4ports.
9mportant results 2or the ;isequili1rium model 2or
.ggregate$ 7rimar3$ #anu2a5tured$ and Semi-manu2a5tured
e4ports 0ere o1tained. Fe had di22erent results 2or partial
ad:ustment pro5ess 2or these "inds o2 e4ports. 6he
5oe22i5ient o2 ad:ustment 2or .ggregate$ 7rimar3$
#anu2a5tured and Semi-manu2a5tured e4ports demand
and suppl3 are: 0.20$ and 0.5'M 0.46 and 0.5,M 0.,4 and
0.'0M and 0.(2 and 0.'0 respe5ti&el3. 6hese results sho0
that o2 all the 5ategories o2 e4ports$ #anu2a5tured e4ports
per2orm 0ell as the mean time lag is minimum. 6his
highlights the 5ru5ial importan5e o2 #anu2a5tured e4ports.
6his 5on2irms the pre&ious results .2/al (2001)* that stud3
o2 e4ports in disaggregated 2orm thro0s su22i5ient light on
the true 1eha&ior o2 aggregate as 0ell as other groupings
o2 e4ports. Lon5entration on the e4amination o2 total
)
)
Demand and Supply of Exports in Paistan
e4port 1eha&ior 5on5eals a num1er o2 2a5ts. 7ri5e
separation 2ormat gi&es desira1le results 2or Semi-
manu2a5tured e4ports demand and suppl3 and this 2ormat
is more suita1le 2or Semi-manu2a5tured e4ports.
67
Muhammad Afzal
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)
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Demand and Supply of Exports in Paistan
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'nternational Economic Journal$ >ol.,$ %o.($ pp.5(-
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%aq&i et al 19'($ 6he 79;= #a5ro-e5onometri5 #odel o2
7a"istanXs =5onom3$ 9slama1ad.
7a"istan$ -o&ernment o2$ Paistan Economic Sur&ey
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69