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Prepared by Catriona Purfield.
The high rate of service export growth in 2004/05 may reflect, in part, misclassification of earnings.
For example, auto components in India are exported as inputs for Asian automobile makers.
The size of the bubble in Figure II.2 represents the value of each export in 2003. So for example, India’s market share of global mineral manufactures—its largest manufacturing export where it accounts for 5½ percent of world trade—rose by 1.3 percentage points between 1990–2003 but the share of this good in global exports has fallen marginally.
The author would like to thank Jaewoo Lee for providing this data.
Stationarity tests confirm the variables are all I (1). Johansen trace and maximum eigenvalue tests point to a single cointegration vector at the 10 percent level of significance.
The sign is counter to expectations. Other studies on Eastern European countries by Rhan, 2003 and Alberola, 2003 find a similar sign. Capital inflows may initially cause debt service to rise and the exchange rate to depreciate until such inflows translate into investment.
The Gregory-Hansen test confirmed the existence of a structural break in the cointegrating relationship in 1992–1993.
The 10-year average growth rates reported in IMF (2005b) are 2 percent per annum for the EU, 3.3 percent for the United States, and 5.3 percent for emerging and developing countries.
Exchange rate flexibility is measured by comparing the volatility of the exchange rate to the volatility of reserves. The closer this ratio is to zero, the nearer the exchange rate system is to a fixed regime.