EXPORT-IMPORT ENDOGENEITY IN THE CONTEXT OF THE THIRLWALL-HUSSAIN MODEL - AN APPLICATION OF THE DURBIN-WU-HAUSMAN TEST INCORPORATING A MONTE-CARLO EXPERIMENT

The Thirlwall-Hussain model (in which output growth depends on export growth) and an ad hoc alternative (in which growth depends on imports) are estimated and compared for the USA. The Durbin-Wu-Hausman test is used to determine the endogeneity or exogeneity of exports and import s with respect to output. A Monte Carlo study reveals the small-sample behaviour of the test statistics, which partly overturns the asymptot ic results. Four sets of Monte Carlo simulations are performed. The fi rst three assume the Thirlwall-Hussain model is correct and add: 1. st andard normal, 2. log-normal, and 3. chi-square error terms. The fourt h simulation uses the bootstrap method relying on the empirical distri bution of the original data, and makes no assumption about the underly ing data generating process. US exports and imports are both endogenou s with respect to output, a major difficulty for the Thirlwall-Hussain model.