Department of Economics, UCSC

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.