An Analysis of Hong Kong Export Performance

The article examines the Hong Kong export performance. A standard export demand formulation is used as the benchmark. Then, we investigate the effects of real exchange rate volatility, “third” country competition, domestic wages, and costs of imports from China on export volume. The study models the Hong Kong domestic exports and re-exports separately, compares the performance of exports to the rest of the world, US and Japan, and uses destination-and-export-type specific unit value indexes to construct real exchange rates. It is found that Hong Kong export performance varies across export types and across destinations. In general, Hong Kong exports display mean-reverting dynamics, are positively influenced by foreign income, and are adversely affected by high value of its currency. The lagged export variable, foreign income, and real exchange rate provide most of the explanatory power. The other variables contribute only marginally in explaining the variability of Hong Kong exports. JEL: F14 Running Head: Hong Kong Export Performance * The author is grateful to Ken Chan, Micheal Devereux, Jiming Ha, Wensheng Peng, Matthew Yiu, an associate editor, and an anonymous referee for their helpful comments and suggestions. This paper was completed when the author was a research fellow at the Hong Kong Institute for Monetary Research, and he thanks the Institute for its hospitality. Desmond Hou provided excellent research assistance. The views expressed in this paper are those of the author and do not necessarily reflect those of the Hong Kong Institute for Monetary Research, its Council of Advisors, or Board of Directors. Address for Correspondence: Economics Department, SS1, University of California, Santa Cruz, CA 95064, U.S.A. Email – [email protected]. Phone: (831) 459-5900 (fax); (831) 459-4247 (office).