An empirical analysis of price and income elasticities of Papua New Guinea's exports

Abstract

A large body of trade literature focuses on analysing aggregate trade relationships, ignoring the sectoral dynamics. This study estimates both aggregated and disaggregated price and income elasticities of demand for Papua New Guinea's exports. We use co-integration and error-correction techniques under a single-equation functional form, with quarterly data spanning 1994 to 2006. Our results suggest that a long-run equilibrium relationship exists for total exports and for the two subsectors of exports: farming, forestry and fisheries, and minerals and petroleum.The results also suggest that the magnitude of the aggregated elasticities is significantly different from that of the disaggregated exports, implying that subsectors respond differently for identical changes in world prices and economic growth.