Comments on The Supply and Demand for Exports of Pakistan: The Polynomial Distributed Lag Model (PDL) Approach Zeshan Atique and Mohsin Hasnain Ahmad
Abstract
I would like to congratulate the young authors on a worthwhile effort in understanding and modelling aggregate exports of Pakistan. Unfortunately, I only received the paper a few days ago, and could not give it the attention that it deserved. The paper offers us a number of intriguing puzzles, resolution of which is likely to improve the paper, and our understanding of the nature of Pakistan's exports, substantially. The first puzzle: The authors claim that the Hausman test shows that there is no simultaneity problem between the supply and demand equation for Pakistani Exports. As Supply and Demand is the classic case of simultaneity, we wonder how this could be so. Of course, it is well-known that simultaneity tests often have low power, and so this could be a case of type II error - there is simultaneity, but the tests failed to detect. If we give the test the benefit of the doubt, and assume that the result is valid, then we must explain how it is that the price of exports is exogenous to the system. On reflection, this is only possible if Pakistan is too small an exporter to influence the price of its exports. In this case, the price of Pakistani exports would be determined on the world market. The quantity of Pakistani exports would then be determined PURELY by the supply equation. There would be no demand for Pakistani exports as such - Pakistani exports would be a small part of the world market, and the world demand would be for the goods. To see this, consider a farmer growing a crop in a competitive market. There is no demand for farmer X's crop or farmer Y's crop; there is only an aggregate demand which all farmers together fulfill in equilibrium.
Reference
Comments on "The Supply and Demand for Export of Pakistan: The Polynomial Distributed Lag Model (PDL) Approach" by Zeshan Atique and Mohsin Hasnain Ahmed. Pakistan Development Review, Vol.42, number 4, Winter 2003.