Does world investment demand determine US exports?

Abstract

Given the importance of capital goods in the growth and variability of US exports, it is natural to expect that investment demand in the rest of the world has been an important determinant of US exports. The purpose of this paper is to demonstrate that such a relationship has obtained over the past quarter of a century, and to point out some broader implications of this fact. If sustained, the finding that world investment demand has driven US exports can lead to a more precise understanding of the open-economy transmission mechanism for the US economy. It means that investment determinants rather than consumption determinants are at the root of export demand. The evidence from the late 1980's suggests that, by ignoring the importance of global investment demand, traditional analysis overplayed the role of the depreciating dollar in accounting for strong exports. -from Author