Estimation of the Export Supply Function for Iron-ore Exports from Goa
Keywords:
Supply Function, Estimation, Demand Constraints, Export Performance, Dynamic Panel DataAbstract
The objective of this paper is to check whether the coefficients in the supply equation i.e. the price elasticities are consistent with the economic theory for iron-ore exports from a regional economy, the State of Goa. Since the export prices are endogenous the Two Stage Least Squares (TSLS) technique is employed as the first step in order to identify the supply equation using all exogenous variables in the equation as instruments using the fixed effect model. Subsequently, an alternative methodology employing a Dynamic Ordinary Least Squares (DOLS) given by Stock and Watson (1993) is estimated for the panel data on firm-level exports. In particular the price elasticity of supply has become positive over time and increased significantly in the recent periods. Thus the results indicate that these firms are more likely to respond to price signals going forward.
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