paid for imported goods. Thus, as long as a product has substitutability, importing
countries can choose alternate sources to satisfy their import demand (Anderson and
Garcia, 1989). Similarly, income (GDPi) positively influences the quantity demanded. As
mentioned in the previous section export credit relaxes the budget constraint of the
importers in the sense that they gain additional income due to cost savings. Thus in this
sense they have more income and are likely to import more with increase in income.
Therefore income is included in our model. Finally, domestic production (DOMi) has a
negative impact on demand in the importing countries provided wheat is a normal good.
Finally in our theoretical model we incorporate a discount factor resulting from the
present value of cost savings accrued from export credits (PVCi). In our empirical
specification, we calculate the net present value of cost savings resulting from GSM 102
export credit as a demand shifter. We use this variable to test our theory of additionality
as a result of export credits. Based on equation (1) we specify our empirical model as
follows:
P
lnMi = = β0 + β1 ln— + β2 lnEX1 + β3 lnGDPt + β4 lnDOM1 + β5 lnPVC t + eit (2)
i,t 0 1 2 i,t 3 i,t 4 i,t 5 i,t i,t
PROWi,t
where M is the value of imports of US wheat in real US dollars. The subscript i denotes
the seven importing countries (i= Egypt, Korea, Mexico, Algeria, Turkey, Jordon and
Indonesia) ,the subscript t represents the time period (t=1994-2004) while ln stands for
the natural log of the variables.
PUSi,t
------is the price ratio of US wheat imports relative to ROW wheat import price. EX is
PROWi,t
the relative exchange rate between US and the importing countries. GDP is the real gross
domestic of the importing country, which represents the income of the importing country
25
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