# _Re-exports or Sudden Surges in Exports_

Significant surges in re-exports are related to fluctuations and breaks, where foreign goods (imports, then exports) pass through from one country to another. Examples include Hong Kong SAR, China, after China's economic liberalization in 1978 and Ireland after the Good Friday Agreement for Northern Ireland in 1998. Singapore is another case with growing re-exports. With no good data yet to separate re-exports, the total value of exports will far exceed GDP, leaving a negative difference for an estimate of the domestic good. The log factor ratios of equations 7 and 8 will become indeterminate. In these cases, we avoid imputing domestic goods from historical shares since the proportions could fluctuate even before the surge in re-exports. Instead, we use the input demand and supply relative to output (GDP) for equations 7 and 8. In place of Dt and Ptd, we use Xt and Ptx, respectively, in both equations (using a country's aggregate output to approximate its aggregate demand on the import side). We use the same approach for equation (9), reasoning that a country's output is also a good approximation of domestic goods relative to the global variables. The solutions appear to work well for these few countries.

Sudden export surges or changes due to oil finds, mineral exports, or tourism could have the same effects. Examples include Antigua and Barbuda, Grenada, and Iraq.

# _Estimation Methods_

As an estimation priority, we employ the vector error correction (VEC) model, a restricted form of the vector autoregression (VAR) model.<sup>15</sup> The method's output has two parts. The first part produces the cointegration equation (CE) or the long-term equilibrium (equations 5, 6, or 9), providing the desired elasticity estimates. It may include possible adjustments or exogenous variables like trends and global variables, which, as a general rule, we restrict to a relevant few. We use the Dickey-Fuller distribution that corrects for the fact that the p-value for the standard t-statistic is skewed to the left. The second part of the output is the error correction. The latter contains the impact of lagged variables that ensure perturbations or deviations will return to the long-term relationship estimated in the first part. We check the system for stability but only report the estimated elasticities and the corrected p-value and t-tests in the long-run cointegration relationship.

Alternatively, we try single cointegrated regressions using the Fully Modified OLS (FMOLS), which allows for various trends and additional regressors. The Wald test for simple linear restriction checks that the elasticities are not zeroes. For the CET case, we also apply VEC to equation 9. If VEC and FMOLS do not yield satisfactory results, we use the Generalized Method of Moments (GMM)). At least one of these methods almost always seems to produce reasonable estimates, so there was no need to look beyond them.<sup>16</sup> Each country presents unique circumstances suggesting a potential for self-contained estimation (for example, see discussion about Figures 2 and 3). However, we limit the interventions to a minimum consistent set across countries. In addition to possible intercepts, trends (linear or quadratic), and lag structure, we confine the introduction of other variables to those already defined in the equations or derived from them, such as trade shares, growth rates of underlying variables in real terms (like exports, imports,

> 15 We use the software Eviews for the estimation.

> 16 Except in one case where we employed the limited information maximum likelihood method.

13