An econometric analysis of the foreign trade of Greece
This study is mainly concerned with the estimation of Greece's dynamic import and export demand equations for goods over the period 1954-1976. Some recent empirical studies of the foreign trade of various countries are first presented and the approaches that have been pursued are described as a preliminary to the development of our own theoretical framework. Foreign trade elasticities are then estimated to test various hypotheses in the theory of international trade and, subsequently, to be used in the formulation of economic policy. Some applications of the empirical findings to the trade balance of Greece are attempted. In general the trade balance of Greece is found to be sensitive to both relative price changes and the growth rates of Greece and its trading partners. In the course of the empirical work a number of methodological pOints of importance in applied econometrics arise. In particular we are concerned with the empirical specification of dynamic models and the resulting hypothesis-testing problems. Two model selection procedures for the empirical specification of dynamic models are described and their performance is evaluated in the context of our large scale empirical study. The first procedure begins with the simplest (statiC) form of the relationship and tests are performed to determine whether it is necessary to consider more general specifications. An alternative method begins with a general unrestricted dynamic model and then attempts to reduce the number of parameters needed to specify the data generation process. These two procedures are applied to every import and export demand equation we consider and the preferred specification to which each approach leads is reported. It is found that the possibility of conflict between the two procedures increases as higher-order dynamic models are considered. The use of monthly data for the period 1954-1976 instead of annual or quarterly observations, which have been employed in previous work on models of foreign trade, constitutes a further novelty of our approach, and the resulting problems and their practical solution are described.