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This paper considers the issue of whether a small developing economy such as Hong Kong faces a perfectly elastic demand for its exports of manufactured goods. The authors construct a simultaneous demand and supply system which is estimated using Full Information Maximum Likelihood methods, and which allows us to clearly identify demand and supply factors in determining export volumes and prices. The authors empirical findings differ from previous studies conducted with this data set in that they suggest that even a small dynamic newly industrialized economy such as Hong Kong may not face an infinitely elastic demand for its manufactured goods. They also advance some reasons to explain why the "small country assumption" may not be applicable in the case of most industrialized economies.
Muscatelli et al. (Sun,) studied this question.