A TEST OF DUTCH LONG-RUN EXPORT SUPPLY BEHAVIOR

The small country assumption affects the modelling of the export deman d and export price equations. A large (monopolistic) country can set i ts export price as a mark-up over marginal cost, because it has market power. In contrast, small countries have to deal with competition whi ch forces prices down to the price level of foreign competitors; price s are exogenous. Another possibility is the case in which a small coun try wants to preserve market shares in foreign markets, this results i n fully endogenous pricing. This paper tests the small country export hypothesis for the Dutch economy using a long-run VAR-model. The estim ated VAR-model includes two long-run equilibrium relationships, which can be identified as an export supply and export demand equation. Rest rictions on the variables are used to test the various hypotheses conc erning the long-run supply relationships.