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Trade between Euro zone and Arab countries: a panel study

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We construct an aggregate data panel to estimate price and income elasticities of the Arab countries imports from and exports to Euro zone. We study the nonstationarity of our series and verify the cointegration hypothesis among the variables using Pedroni's (2004) heterogeneous panel cointegration tests. The panel data circumvent the problem of short span sample and increase the power of the nonstationarity tests. Then, we estimate the idiosyncratic and panel cointegrating vectors using dynamic ordinary least squares (DOLS) (Kao and Chiang, 2000), fully modified ordinary least squares (FMOLS) (Phillips and Hansen, 1990) and group mean DOLS and FMOLS developed by Pedroni (2000, 2001). Our variables are shown to be cointegrated. Arab imports from Euro zone countries are income inelastic, but price elastic. Results of export function are not conclusive and depend on the used estimator.
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Document Type: Research Article

Affiliations: Department of Economics, United Arab Emirates University, Al-Ain, United Arab Emirates

Publication date: 2007-09-01

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