Foreign Trade Behavior in Thailand: Stable or Unstable?

Abstract

This paper analyzes the demand for import and export functions of Thailand. It provides new evidence on both cointegration and the stability of the long-run relationship between trade flows and their determinants. Cointegration analyses are based on the Johansen (1992, 1995) system approach and the FM-OLS by Phillips and Hansen (1990) technique. Evidence of stability is examined using two formal tests of the cointegration space by Hansen and Johansen (1993) and Hansen (1992). The major results show that there is a long-run equilibrium relationship between trade flows and their determinants. While the import demand function appears structurally stable, there is evidence of parameter instability in the export demand function.