This paper shows that, consistent with the ‘economic base’ theory, exports drive domestic consumption and domestic investment, but housing appears to serve as an important link between exports and domestic expenditures. Focusing on the Hong Kong economy, which is a small open economy with a big population, we found that exports and interest rates drive housing prices over a long period, while housing prices in turn drive domestic expenditures.
Copyright © 2008 The Authors. Pacific Economic Review © 2008 Blackwell Publishing Asia Pty Ltd
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