Alternative dynamics in agricultural supply response: An estimation of supply functions of certain annual crops in Greece using co-integration analysis
1993
Konstadellos, G.
Cointegration analysis and error correction modelling provide a framework of combination of the long-run, or equilibrium relationships described by economic theory with the sort-run dynamics found necessary by time series analysis to explain economic data. The present study explores the relevance of this alternative framework to agicultural supply modelling. It presents the statistical concept of cointegration, and it is shown how the use of this kind of analysis can avoid serious econometric shortcomings (spurius regressions, nonstationarity in data, inappropriate use of the first differences). The theoretical basis of error correction model is also outlined, and it is shown how the familiar partial adjustment model is a restrictive special case which is theoretically founded on the unrealistic assumption of a fixed target supply base on stationary expectations. An error correction model of certain Greek annual agricultural products (soft wheat, hard wheat, barley, sugar beets, and cotton) is formed and estimated providing reasonable results although only in one out of the five cases is preferred in specification tests to the partial adjustment model.
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