A Model of U.K. Export of Manufactures to Industrial Countries.

This paper describes a model of U.K. exports of manufactures to industrial countries. The model is outlined in the first section and estimated in the succeeding section. The next section compares the relative efficiencies of aggregate and micro-relations. The paper ends with a discussion of a partially reduced form of the model. Industrial countries are defined as 1967 OECD members (excluding Iceland); these countries accounted for 50 per cent of world imports of manufactures and 70 per cent of total world imports and took about 56 per cent of U.K. total exports of manufactures, in 1967. Manufactured goods are defined as SITC Sections 5-S inclusive. Quarterly data from 1956 to mid-1968 are used. All trade and price series are expressed at 1963 U.S. dollar prices, and activity indicators are also expressed in real terms. This was because it was thought that the structural parameters of the model could be better estimated using volume rather than value flows. Also the full London Business School macro-economic model measures national income as the sum of expenditures corresponding to output produced at home at 1963 prices. So, in forecasting G.D.P., estimates are needed of U.K. exports at 1963 prices. Conversion to current price forecasts, for balance of payments purposes, is made using an explanatory relationship for U.K. export prices of manufactures. Conversion into sterling terms from dollar values is straightforward, after allowing for the sterling devaluation of November, 1967. The present model is only a partial version of a larger system explaining individual trade flows between countries; it is concerned wily with individual relations for British exports by markets and with total import flows for the other industrial countries.