Export-import endogeneity in the context of the Thirlwall– Hussain model: an application of the Durbin–Wu–Hausman test incorporating a Monte Carlo experiment

Abstract

The Thirlwall–Hussain model (in which output growth depends on export growth) and an ad hoc alternative (in which growth depends on imports) are estimated and compared for the USA. The Durbin–Wu–Hausman test is used to determine the endogeneity or exogeneity of exports and imports with respect to output. A Monte Carlo study reveals the small-sample behaviour of the test statistics, which partly overturns the asymptotic results. Four sets of Monte Carlo simulations are performed. The first three assume the Thirlwall–Hussain model is correct and add: 1. standard normal, 2. log-normal, and 3. chi-square error terms. The fourth simulation uses the bootstrap method relying on the empirical distribution of the original data, and makes no assumption about the underlying data generating process. US exports and imports are both endogenous with respect to output, a major difficulty for the Thirlwall–Hussain model.