DEMAND FOR LDC EXPORTS OF MANUFACTURES: ESTIMATES FROM HONG KONG.

This paper shows how important model specification is in estimating the parameters of demand for LDC exports. The supply side of LDC exports is difficult to model, and as a result has been addressed primarily by assumption. Assuming supply is infinitely elastic, the bulk of time series work has found relatively low price elasticities and high income elasticities of demand for LDC exports in developed countries, their major export markets. Thus it has become a widely held view that LDC export prospects depend crucially on the level of income and prosperity in developed countries. A further implication of the 'consensus view' is that LDCs are limited in their ability to use price competition (including exchange rate adjustment) to maintain or even increase exports in a period of weak aggregate demand in developed countries. If Hong Kong faces an infinitely elastic demand for its exports, would not other developing countries which export similar products? One reason they might not is that they may be less able than Hong Kong to circumvent trade barriers in developed countries. Where other LDCs also may differ from Hong Kong is in their ability to compete in world markets. Hong Kong is renowned for its resourcefulness and adaptability. The econometric results reported above confirm that, indeed, Hong Kong exporters are highly responsive to price incentives, and that Hong Kong workers are prepared to adjust real wages as market conditions change. These, far more than the state of external demand, are the key ingredients of Hong Kong's superlative export performance. [ABSTRACT FROM AUTHOR]