THE JOURNAL OF ENERGY

AND DEVELOPMENT

Samuel Gamtessa,

“Price and Income Elasticity of Oil

Import Demand under
Foreign Exchange Constraints,”
Volume 42, Number 2

Copyright 2017
 PRICE AND INCOME ELASTICITY OF OIL
IMPORT DEMAND UNDER FOREIGN
EXCHANGE CONSTRAINTS

Samuel Gamtessa*

Introduction

M any Sub-Saharan African countries have been experiencing spectacular

economic growth recently. Trends show that gross domestic product (GDP)
per capita has risen significantly leading to increases in passenger car ownership.
Moreover, massive numbers of road, dam, and bridge construction have taken
place. Freight and public transportation needs also have shown concomitant in-
creases. Sustaining these favorable economic and social trends requires reliable
and adequate sources of energy, particularly hydrocarbon fuels.
Meanwhile, many of these economies rely on imports to source their hydrocarbon
fuel supplies. Moreover, many of them have limited access to foreign borrowing and
unsatisfactory export performances, both of which are causing a prevalence of foreign
exchange shortages, which limits their import capacities. This makes the economies
vulnerable to world oil price shocks. According to the African Development Bank,
high oil prices can have very harmful effects on the economies of African

*Samuel Gamtessa is Assistant Professor at the University of Regina, Department of Economics,

Saskatchewan, Canada. He earned a B.A. degree in economics and a M.Sc. degree in economic policy
analysis from Addis Ababa University, Ethiopia and a Ph.D. degree in economics from the University
of Alberta, Alberta, Canada. His primary research is in the area of econometric modeling of energy
efficiency and energy demand, technical change and technical efficiency, and the economics of climate
change policies such as carbon tax. He has recently published his works in such journals as Energy and
Buildings, Energy Efficiency, and Canadian Public Policy. The author wishes to thank the editors and
referees of the Journal of Energy and Development for their helpful feedback.

The Journal of Energy and Development, Vol. 42, Nos. 1 and 2

Copyright Ó 2017 by the International Research Center for Energy and Economic Development
(ICEED). All rights reserved.
271
272 THE JOURNAL OF ENERGY AND DEVELOPMENT

oil-importing countries.1 Specifically, rising oil prices will lead to a decrease in

output and worsens the net foreign asset position.
Managing oil supply security requires establishing the responsiveness of oil
consumption to the underlying factors, specifically using elasticity estimates. In
the context of foreign exchange-constrained oil-importing African nations, oil
price and the level of economic activity are not the only underlying factors; the
supply-side constraint imposed by foreign exchange availability is also a salient
element. Price and income elasticities estimated without accounting for such supply-
side constraints actually can be misleading.
Although the empirical literature on aggregate imports has clearly documented
the need to account for foreign exchange constraints in estimating income and price
elasticities of import demand, this issue has not yet been focused on by the oil import
literature in the African context where both foreign exchange constraints and oil
import dependency are prevalent. This paper seeks to fill this gap by discussing the
conceptual framework for incorporating foreign exchange reserves and providing
empirical estimates for income and price elasticity of oil import demands in the
context of eight Sub-Sahara African countries (Ethiopia, Kenya, Malawi, Rwanda,
Tanzania, Uganda, Zambia, and Zimbabwe) that depend entirely on imports for their
petroleum demand. Using the dynamic panel system generalized method of move-
ment (GMM) technique, it is found that, in terms of elasticity, foreign exchange
availability is more important than prices. That is, given the absolute necessity of oil
consumption for a smooth functioning of the economies, the countries would re-
spond less to price changes to the extent that they have the foreign exchange to pay
for the purchases. Moreover, it is demonstrated that adequacy of the empirical model
requires inclusion of the foreign exchange reserve as one explanatory variable.
The importance of capturing import capacity proxied by foreign exchange re-
serves in modeling import demand was given attention first by W. Hemphil.2
M. Khan and M. Knight3 elucidated the issue by noting that import restriction in
developing countries, which is necessitated largely due to capacity constraints,
warrants the need to modify the traditional import model, which simply suggests
that import depends on income and price.4 This subject was further elaborated
upon by C. Moran, R. Faini et al., and R. Lopez and V. Thomas.5 R. Lopez and
V. Thomas, in particular, highlight that income elasticity is very unstable in devel-
oping countries given that restrictions imposed on imports, driven by foreign ex-
change constraints, would lead to low elasticity during that period when there is the
restriction, only to return to its normal level whenever the restrictions are removed.6
On the other hand, the modified import demand functions are superior in explaining
import demand behavior in developing countries. Additionally, elasticity estimates
are found to be stable over time when this factor is taken into account. As a result,
many recent empirical studies on aggregate import demand in the context of de-
veloping countries have included foreign exchange reserves in their empirical
models for aggregate import demand. A. Arize and S. Nippani provide a summary
 ELASTICITY OF OIL IMPORT DEMAND 273

of the empirical literature and present new results in the context of some African
countries.7 They underline that the foreign exchange reserve is a significant variable
in import demand models in the context of developing countries.
A search of the literature reveals that oil import demand modeling research has
ignored the issue of import capacity (E. Ziramba, S. Ghosh, G. Altinay, A. Moore,
J. Xiong and P. Wu, C. Tsirimokos, D. Gately and H. Huntington, J. Dargay et al.,
and S. Yaprakh and F. Kaplan).8 S. Yaprakh and F. Kaplan provide a summary
detailing the period and countries covered, methodologies, and the estimation
results for most of the studies cited above.9 They also note that the existing lit-
erature predicts that price elasticity of oil demand is very low. None of the studies,
regardless of whether they are in the context of developing or developed countries,
discussed the issue of foreign exchange availability.
Therefore, the objective of this study is to bring this issue to the forefront. The
paper begins by providing a simple theoretical framework for an import demand
model with foreign exchange constraint, proxied by foreign exchange reserve based
upon a modified framework provided by A. Senhadji.10 This is done in two ways.
First, unlike Senhadji, it is assumed here that the representative household cannot
borrow or lend in the international financial market but receives net transfers of
various forms (foreign aid and remittances, being the main ones). This net inflow is
exogenous and can be positive or negative. If the flow is positive, foreign exchange
reserves would be larger than the export proceeds. The reverse occurs if net inflows
are negative. This relationship between foreign exchange reserves and export
earnings provides a simple avenue for incorporating foreign exchange reserves in
household budget constraints without any complications. Accordingly, the mod-
ified framework provides a structural import demand function in which import
depends on price, domestic absorption, and foreign exchange reserve.
The conceptual framework will be presented in the subsequent section after
which a discussion of the estimation approach is given. This is followed by an
overview of the data and estimation results. The last section of the paper presents
the results and draws some conclusions.

Conceptual Framework and Estimation Method

Conceptual Framework: In the structural import demand model formulated

by Senhadji, imports are determined by an optimizing representative household
that maximizes utility derived from consumption of domestic and imported goods
subject to budget constraints.11 The budget constraint is specified under the as-
sumption that households exogenously receive a numeraire good (endowment).
Thus, there is no production function involved in the model (see X. Xu for
a framework that relaxes this assumption).12 The representative household allo-
cates the endowment to consumption and exports. The budget constraint assumes
274 THE JOURNAL OF ENERGY AND DEVELOPMENT

unlimited access to foreign borrowing and lending. Under these conditions, import
is shown to depend on domestic absorption (GDP minus export) and the relative
import price (the ratio of import price to export price).
In this paper, this set up is modified by assuming that the representative household
cannot borrow from abroad and exports are the major source of foreign exchange.
However, available foreign exchange at a given time could be larger or smaller than
export proceeds due to exogenous net foreign-exchange inflows from remittances,
aid, and other net receipts from abroad. That is, net foreign exchange inflows at time t,
denoted ft, is given as ft = Ft + xt where Ft is other net inflows such as remittances
and xt is export proceeds. Given that export is GDP minus consumption, we rewrite
our foreign exchange inflows as ft = Ft + ð yt
ct Þ, where yt is endowment (GDP) and
ct is consumption. Given this, foreign exchange reserve available at any time is given
as Rt = Rt
1 + Ft + ð yt
ct Þ.
The representative household maximizes discounted utility derived from consump-
tion of other goods ðct Þ and imported oil ðot Þ subject to the foreign exchange constraint
X
‘
max Eo ð1 + rÞ
t uðct ; ot Þ
ct ;ot
t=1

s:to pot ot £ Rt
1 + ft + ð yt
ct Þ ð1Þ

where E0 is expectation operator, r is time discount rate, uðct ; ot Þ is the in-
stantaneous utility function, and pot is relative oil import price. Given yt , selection
of consumption automatically determines export quantity. Assuming that the
budget constraint is satisfied with equality, it can be re-written as:
yt
ct = pot ot
Rt
1
ft ð2Þ

Assuming that utility function is given as in Senjhadji13 by

at c1
u bt o1
b
t
uðct ; ot Þ = t
+ ð2Þ
1
u 1
b
where at = ea0 + ea;t ; bt = eb0 + eb;t given that ea;t and eb;t are stationary shocks and are
uncorrelated, 1=u and 1=b are elasticities of intertemporal marginal substitutions
for ct and ot , respectively. Setting up the Lagrangian yields equation (3):
( " # )
X‘

1 at ct
1
u
bt o1
b
t   o 
‘ = E0 ð1 + rÞ + + lt yt
ct
pt ot
Rt
1
f t
t=0
1
u 1
b
ð3Þ

The first order conditions are:

 ELASTICITY OF OIL IMPORT DEMAND 275

ct : at ct– u = lt ð4:1Þ

ot : bt o
b
t = lt pt
0
ð4:2Þ
yt
ct = pot ot
Rt
1
f t ð4:3Þ

We derive import demand equation by substituting lt into equation (4.2) by its

expression given in the equation (4.1). After re-arranging, we obtain equation (5):
 1=b
 o 
1=b u=b 1=b bt  o 
1=b u=b
ot = at pt c t bt = pt ðct Þ ð5Þ
at

Equation (4.3) allows us to write ct = yt + Rt
1 + ft
pot ot . Substituting this in

equation (5) gives us equation (6):

 1=b
bt  o 
1=b  u=b
ot = pt yt + Rt
1 + ft
pot ot ð6Þ
at

In this equation, the only endogenous variable is oil import. Thus, it can be
seen as an implicit import demand function. The exogenous variables are real
GDP ð yt Þ, stock of foreign exchange reserve ðRt
1 + ft Þ, and world oil price ðpot Þ
as well as the random shocks given by the bt =at ratio. Therefore, the equation
posits that oil import demand depends on real GDP, foreign exchange reserves,
and oil price. The innovation in the model proposed in equation (6) is that the
existing literature does not take foreign exchange reserve into considerations.
Estimation Method: We specify a dynamic panel data econometric model based
on the predictions in equation (6) and given in equation (7):

lnot;i = a0 + a1 ln p0t;i + a2 ln Rt;i + a4 ln yt;i + lnoi;t
1 + mi + et;i ð7Þ

where i indexes countries, t indexes time, and mi denotes the unobserved country-
specific effects. Equation (7) is a dynamic panel specification because of the presence
of the lagged dependent variable on the right-hand side.
One feature of a dynamic panel model is the existence of correlation between
the lagged dependent variable and the country-specific term ðmi Þ and/or the error
term ðei;t Þ. One approach to this problem is to present the model in difference form.
This eliminates the fixed effects but the lagged dependent variable (the difference
between one-period and two-period lags of dependent variable) can be included to
improve this shortcoming. This will, in turn, create another problem since the
276 THE JOURNAL OF ENERGY AND DEVELOPMENT

lagged dependent variable is correlated with the first difference of the error term.
To overcome this, the instrumental variable technique is proposed by using a two-
period lag of the dependent variable as an instrument for the one-period lag of the
dependent variable. This instrument is chosen because it is correlated with the one-
period lag of the dependent variable but not correlated with the difference of the
error terms. The implication is to write equation (8) in in first different as
Dlnot;i = g 1 Dlnpoi;t + g 2 lnyi;t + g3 DlnRi;t + g4 Dlnoi;t
1 + hi;t ð8Þ
and estimate using instrumental variable methods approach by using Dlnot
2 or
simply lnot
2 as a valid instrument for Dlnot
1 .
M. Arellano, specifically, shows that the use of Dlnot
2 as an instrument results
in large standard errors and recommends the use of lnot
2 as an instrument.14
Along this line, M. Arellano and S. Bond propose a GMM approach assuming that
the error term includes both the fixed effects and the usual error terms:
 = mt+ ei;t and using the moment conditions that Eðmi Þ = 0; Eðe15i;t Þ = 0; and
hi;t
E mi ei;t = 0 8 i = 1;:::; N; and t = 2;:::; T; where E denotes
 expectation.
 The initial
conditions ln oi;t are predetermined and  E lnoi;t; ei;t = 0. Furthermore,
 satisfy  as-
suming that ei,t has finite moments E ei;t ei;s = 0 8 t6¼s; and i = 1;::; N implies that
the level values of the dependent variable lagged two periods or more are valid
instrumental variables. That is, a GMM estimation of the model in equation (8) can
be implemented with the following moments restrictions:
 
E ln ot
s Dei;s = 0 8 i = 1; . . . N and T = 3; . . . T ; and s ³ 2 ð9Þ

Compared to the instrumental variable approach, GMM estimates are more ef-
ficient. The method proposed above does not, however, overcome the problem that
is related to first differencing, which eliminates the fixed effect terms and, therefore,
leads to loss of significant information about time-invariant country characteristics
(see R. Blundell and S. Bond, R. Blundell et al., and S. Bond et al. for more detail).16
System GMM technique is proposed to overcome this problem (M. Arellano and
O. Bover and R. Blundell and S. Bond)17 with additional moments restriction that
the fixed-effect and the two-period lag of the differenced dependent variable are
uncorrelated: Eðmi Dlnoi;t
2 Þ = 0 8 i = 1;:::; N. Together with the above condition—
equation (9)—this additional condition (which is a restriction on initial process
generating lno1;i ) leads to the following additional moment restrictions:
 
E Dlnoi;t
1 ei;t = 0 8 i = 1; . . . N and t = 3; 4; . . . T ð10Þ

Therefore, in system GMM the difference and level equations are estimated
simultaneously using moment restrictions given by equations (9) and (10). By
doing so, the system GMM retains information about the fixed effects.
 ELASTICITY OF OIL IMPORT DEMAND 277

Data

Data on real GDP, real domestic absorption, export price indexes, and population
are obtained from the newest version of Penn World Tables.18 Foreign exchange
reserve data are obtained from the International Monetary Fund (IMF) financial
statistics yearbook. Data on petroleum products (refined and crude petroleum) im-
ports, expressed in terms of barrels per day, are obtained from the U.S. Energy In-
formation Administration (EIA). All values are expressed in terms of per capita by
dividing with population. Price of oil imports is defined as the West Texas In-
termediate (WTI) spot price index expressed in terms of domestic currency units
using exchange rates. It is then divided by export price indexes to obtain the relative
price of oil imports. The WTI spot price indexes, in terms of U.S. dollar per barrel, are
collected from the EIA. The countries studied are Ethiopia, Kenya, Malawi, Rwanda,
Tanzania, Uganda, Zambia, and Zimbabwe. The period under study is 1986–2011.
Figures 1 through 4 present the trends in the data. Figure 1 reveals the interesting
case of Zimbabwe compared to the other countries, where per-capita oil imports
declined from over 2.5 barrels per day during the late 1990s to as little as 1 barrel in
2008. This distinct pattern in oil import trends is directly related to the trends in per-
capita foreign exchange reserves shown in figure 2. As can be seen, foreign ex-
change reserves declined rapidly since 1998 and started to improve in 2009. This
example clearly shows that foreign exchange reserves are an important driver of
import volumes. Figures 3, 4, and 5 present trends in per-capita foreign exchange
reserves, GDP, and WTI, respectively. In figure 3, we observe that foreign exchange
reserves were building up faster in four of the eight countries. Per-capita GDP is the
highest in Zimbabwe during the period under study, as can be seen in figure 3, but
oil imports have declined to about average since 1998. This fact also indicates that
foreign exchange reserves are a significant determinant for oil imports.

Results and Discussions

Table 1 presents the estimation results for specifications with and without
controlling for foreign exchange reserves. In both cases, the reported standard
errors are robust to heteroscedasticity and autocorrelation. The models’ valida-
tions are ascertained based on statistical significance of the individual coefficients,
the tests of overall significance (Wald test), and the tests of over-identifying re-
strictions (Sargan test). A test of overall significance confirms the models’ ade-
quacy to capture the data. Another critical indicator is the test of over-identifying
restrictions, which is based on whether the calculated c2 statistic is not signifi-
cantly different from zero in which non-rejection of the null is a desired outcome.
We observe that this condition is satisfied in both models, with computed values of
the statistic and the critical values being very close for both specifications.
 Figure 1
278

PER-CAPITA OIL IMPORTS, 1986-2011

(in barrels per day)

Source: Data from the U.S. Energy Information Administration.

THE JOURNAL OF ENERGY AND DEVELOPMENT
 Figure 2
TRENDS IN PER-CAPITA FOREIGN EXCHANGE RESERVES, 1986-2011
(in U.S. dollars)
ELASTICITY OF OIL IMPORT DEMAND

Source: Data from the International Monetary Fund’s Financial Statistics Yearbooks.
279
 Figure 3
280

TRENDS IN PER-CAPITA FOREIGN EXCHANGE RESERVES IN ZIMBABWE, 1986-2011

(in millions of U.S. dollars)

Source: Data from the International Monetary Fund’s Financial Statistics Yearbooks.
THE JOURNAL OF ENERGY AND DEVELOPMENT
 Figure 4
PER-CAPITA REAL GROSS DOMESTIC PRODUCT (GDP), 1986-2011
(Current purchasing power parity in U.S. dollars)
ELASTICITY OF OIL IMPORT DEMAND

Source: Data from the Penn World Tables.

281
 Figure 5
282

TRENDS IN WEST TEXAS INTERMEDIATE (WTI) SPOT OIL PRICES, 1986-2011

(in U.S. dollars per barrel)

Source: Data from the U.S. Energy Information Administration.

THE JOURNAL OF ENERGY AND DEVELOPMENT
 ELASTICITY OF OIL IMPORT DEMAND 283

Table 1
a
ESTIMATION RESULTS

Dependent Variable Model # 1 Model # 2

Lag of oil imports 0.84 (0.040) 0.85 (0.040)

Price -0.01 (0.006) -0.01 (0.005)
Foreign exchange reserve 0.02 (0.001)
Real gross domestic product (GDP) 0.09 (0.031) 0.10 (0.030)
Constant -0.96 (0.260) -0.72 (0.230)
2
Wald c 1136.65 1123.66
2
Prob. > c 0.00 0.00
2 2
c (187) = 187.16 c (329) = 191.63
2 2
Test of over-identifying restrictions Prob. > c = 0.42 Prob. > c = 0.39

a
Values in parentheses are standard errors.

All coefficients have the expected signs. Price elasticity is significant at the 10-
percent critical level while the others are significant at least at the 5-percent level.
This shows that price might be of less importance in determining import demand.
The interesting result is that there is little change across the two specifications in
terms of both magnitude of coefficients as well as their levels of statistical sig-
nificance except for the constant terms.
The long-run elasticity of price for the models with and without foreign ex-
change reserve is -0.06 and -0.07, respectively. The respective income elasticities
are 0.60 and 0.63. While the estimated income elasticities are not very different
from what is found in the existing literature (see S. Yaprakh and F. Kaplan for
a summary of the results),19 the very small price elasticity appears to be unique to
these African countries. The long-run elasticity of demand with respect to the
foreign exchange reserve is 0.13, which is twice as much as the long-run elasticity
of price, although very small when compared to the long-run elasticity of income.
A smaller elasticity of foreign exchange relative to both price and income elas-
ticities has been documented in aggregate import studies.20 In this study, in con-
trast, we find that foreign exchange is more important than price. This result attests
to the fact that oil is a necessity such that the key underlying factor for oil demand
is the activity variable, provided that there is the capacity to import.

Conclusion and Policy Implications

This study points out that import capacity is a very important variable in the
context of developing countries that have limited access to foreign borrowing.
This view has been well established in the literature on aggregate imports.
284 THE JOURNAL OF ENERGY AND DEVELOPMENT

Nonetheless, the oil import demand studies published in peer-reviewed journals

thus far have ignored the issue. To this effect, an attempt has been made in this
research to shed light on how foreign exchange reserves are significant in an oil
import demand model by providing a simple theoretical framework for a structural
oil import demand model with an explicit micro-foundation.
The estimation makes use of data from eight Sub-Saharan African countries
that rely entirely on imports for their oil needs. The results confirm the importance
of foreign exchange reserves in oil import modeling. The estimated elasticities
show that price is not very significant in terms of both magnitude and statistical
significance. In terms of magnitude, the elasticity with respect to foreign exchange
reserves is twice as much the elasticity with respect to price. Of course, the largest
elasticity is with respect to the activity variable (domestic absorption).
The policy implication is that developing countries that depend on oil imports
should integrate foreign exchange availability in their energy planning. Promoting
mechanisms that can boost foreign exchange inflows appears to be an effective
way of ensuring energy security when importing oil.

NOTES
1
African Development Bank and the African Union, Oil and Gas in Africa (Oxford, U.K.:
Oxford University Press, 2009).
2
W. L. Hemphill, “The Effect of Foreign Exchange Receipts on Import of Less Developed
Countries,” IMF Staff Papers, vol. 21, no. 3 (1974), pp. 637–77.
3
M. S. Khan and M. D. Knight, “Import Compression and Export Performance in Developing
Countries,” Review of Economics and Statistics, vol. 70, no. 2 (1988), pp. 315–21.
4
M. S. Khan, “Import and Export Demand in Developing Countries,” IMF Staff Papers, vol. 21
(November 1974), pp. 679–93.
5
C. Moran, “Import Demand under a Foreign Exchange Constraint,” Policy, Planning, and Research
Working Paper no. 1, Washington, D.C., Country Economics Department, The World Bank, 1988; R. Faini,
L. Pritchett, and F. Clavijo, “Import Demand in Developing Countries,” Policy, Planning, and Research
Working Paper no. 1, Washington, D.C., Country Economics Department, The World Bank, 1998; and
R. Lopez and V. Thomas, “Growth in Imports and Income: Considerations for Africa,” UNDP-World Bank
Trade Expansion Program, Occasional Paper no. 1, Washington, D.C., The World Bank, 1988.
6
R. Lopez and V. Thomas, op. cit.
7
A. C. Arize and S. Nippani, “Import Demand Behaviour in Africa: Some New Evidence,” The
Quarterly Review of Economics and Finance, vol. 50, no. 3 (2010), pp. 254–63.
8
E. Ziramba, “Price and Income Elasticities of Crude Oil Import Demand in South Africa: A
Cointegration Analysis,” Energy Policy, vol. 38, no. 12 (2010), pp. 7844–849; S. Ghosh, “Import De-
mand of Crude Oil and Economic Growth: Evidence from India,” Energy Policy, vol. 37, no. 2 (2009),
pp. 699–702; G. Altinay, “Short-Run and Long-Run Elasticities of Import Demand for Crude Oil in
Turkey,” Energy Policy, vol. 35, no. 11 (2007), pp. 5829–835; A. Moore, “Demand Elasticity of Oil in
 ELASTICITY OF OIL IMPORT DEMAND 285

Barbados,” Energy Policy, vol. 39, no. 6 (2011), pp. 3515–519; J. Xiong and P. Wu, “An Analysis of
Forecasting Model of Crude Oil Demand Based on Cointegration and Vector Error Correction Model
(VEC),” Proceedings of the 2008 International Seminar on Business and Information Management, vol. 1
(2008), pp. 485–88; C. Tsirimokos, “Price and Income Elasticities of Crude Oil Demand. A Case of Ten
IEA Countries” (Master thesis no. 705, Swedish University of Agricultural Sciences, Uppsala, Sweden,
2011); D. Gately and H. G. Huntington, “The Asymmetric Effects of Changes in Price and Income on
Energy and Oil Demand,” The Energy Journal, vol. 23, no. 1 (2002), pp. 19–55; J. M. Dargay, D. Gately,
and H. G. Huntington, “Price and Income Responsiveness of World Oil Demand by Product,” New York
University, New York, 2007 (mimeographed); and S. Yaprakh and F. Kaplan, “Reexamining of the
Turkish Crude Oil Import Demand with Multi-Structural Breaks Analysis in the Long Run Period,”
International Journal of Energy Economics and Policy, vol. 5, no. 2 (2015), pp. 402–7.
9
S. Yaprakh and F. Kaplan, op. cit.
10
A. Senhadji, “Time Series Estimation of Structural Import Demand Equations: A Cross-
Country Analysis,” IMF Staff Papers, vol. 45, no. 2 (1998), pp. 237–68.
11
Ibid.
12
X. Xu, “The Dynamic-Optimizing Approach to Import Demand: A Structural Model,” Eco-
nomics Letters, vol. 74, no. 2 (2001), pp. 265–70.
13
A. Senhadji, op. cit.
14
M. Arellano, “A Note on the Anderson-Hsiao Estimator for Panel Data,” Economics Letters,
vol. 31, no. 4 (1989), pp. 337–41.
15
M. Arellano and S. Bond, “Some Tests of Specification for Panel Data: Monte Carlo Evidence
and an Application to Employment Equations,” The Review of Economic Studies, vol. 58, no. 2
(1991), pp. 277–97.
16
R. Blundell and S. Bond, “Initial Conditions and Moment Restrictions in Dynamic Panel Data
Models,” Journal of Econometrics, vol. 87, no. 1 (1998), pp. 115–43; R. Blundell, S. Bond, and
F. Windmeijer, “Estimation in Dynamic Panel Data Models: Improving on the Performance of the
Standard GMM Estimator,” in Nonstationary Panels, Panel Cointegration, and Dynamic Panels,
Advances in Econometrics, ed. B. Baltagi, vol. 15 (Amsterdam: JAI Press, 2000); and S. Bond,
A. Hoeffler, and J. Temple “GMM Estimation of Empirical Growth Models,” CEPR Discussion
Paper Series no. 3048, London, Centre for Economic Policy Research (CEPR), 2001.
17
M. Arellano and O. Bover, “Another Look at the Instrumental Variable Estimation of Error-
Components Models,” Journal of Econometrics, vol. 68, no. 1 (1991), pp. 29–51, and R. Blundell
and S. Bond, op. cit.
18
R. C. Feenstra, R. Inklaar, and M. P. Timmer, “The Next Generation of the Penn World
Table,” American Economic Review, vol. 105, no. 10 (2015), pp. 3150–182.
19
S. Yaprakh and F. Kaplan, op. cit.
20
G. Altinay, op. cit.