Cointegration Analysis of an Inverse Factor Demand System with Exogenous Variables: An Application to Imported Inputs in Thailand Industry

This paper applies cointegration analysis to estimate an inverse demand system. We derive an inverse factor demand system from the generalized McFadden function form of input distance function. The empirical application is on the imported factor demand system in Thailand, including four types of factors: crude materials, mineral fuel and lubricant, chemical, and machinery. A cointegration analysis including exogenous variables is conducted using monthly data from January 1993 to March 2003. We found one cointegrating vector and six common stochastic trends and all short-run flexibilities are less than one in absolute value