Export supply function in Croatia

The main aim of this paper is investigation of the interplay between Croatian export supply and the real exchange rate, i.e., the relative prices. The price elasticity of export supply was analysed through modelling both the short- and the long-run structures of the model. Additionally, the relationship between export supply and production capacity was also subjected to the analysis. As a result, this paper provides some insights into the importance played by the real exchange rate and production capacity in explaining total Croatian export. The model is analysed over the period January 1994 to December 2002. In the long-run, variable income and real exchange rate show expected signs, and their influence on export supply is statistically significant. Lagged changes of the real exchange rate are not statistically significant for the current total export trade in the short-run. This implies that Croatian total export reacts parsimoniously and slowly to the changes in the real exchange rate. The phenomenon could be due to the large share those products in Croatian exports that are exchange rate-inelastic.