countries’ benefit from the increased present value of cost savings resulting from the
GSM 102 export credits granted by the US, they are likely to import more wheat from the
US.
Estimation Method:
Due to the limited availability of time span of availability of data on the GSM- 102
export credits given by the US to the importing countries, we pool time-series and cross-
section data to increase the sample size of our data set. Several econometric problems
were addressed before estimation. First we evaluated estimated the stationarity properties
of the variables using an Im, Pesaran and Shin panel unit root test. Results of the test are
reported in Table 1.21
The variables price ratio and domestic production were found to be stationary both under
the presence of a constant and constant and trend at the one percent level. On the other
hand, exchange rate, income and cost saving and cost saving were found to be stationary
under the presence of a constant but non-stationary under the presence of a constant and a
time trend at the 5 percent level (with the exception of exchange rate which was
significant at the one percent level). Based on our results we can conclude that there is
lack of sufficient evidence of non-stationary in the variables tested. Next we address the
potential endogeneity of the price ratio.
The demand for US wheat by importing countries may influence the import price of
wheat. Thus the value of US imports and price are jointly determined causing the price
ratio to be correlated with the error term. Presence of an endogenous variable indicates
21
For additional literature on testing stationary properties of variables in panel data see Breitung and
Meyer,1994; Im, Pesaran, and Shin ,2003; Pedroni,2004;Baltagi,2005. Results of panel unit root test for
model II are similar and not reported here to conserve space. These are available from the authors on
request.
27