Aggregate Export Supply

As is evident from Figure 10.2.1, exports in MM are modelled on a ‘tops-down’ basis. Thus equilibrium aggregate exports are first determined on the basis of equality between the marginal rate of transformation between the domestic good and the aggregate exportable and their relative product price ratio; allowance is then made for frictions in adjustment to this equilibrium; finally, the actual level of aggregate exports is disaggregated in proportions which are ‘fixed’ in the sense of being unresponsive to relative component prices8, but variable in the sense that they change autonomously over time. This chapter deals only with the first two of these stages; disaggregation is discussed in Chapter 15.