| Sumario: | The purpose of this study is to examine this issue further, using a different country--Israel--as a case study. The exports equation of this model includes both a price variable and a measure of domestic demand so that we can examine empirically whether both variables should be included in the exports equation. Furthermore, comparing our results with previous results obtained for Israeli exports (by Halevi, 1972), we were able, using a measure of DDP that is based on the difference between potential and actual output, to demonstrate that if domestic demand pressure is erroneously omitted from the exports equation, upward-biased estimates of the price elasticity result.
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