MFA fibers and cotton imported to the United States from China and Hong Kong - A structural change analysis

Using the endogenous break augmented Dickey-Fuller test of Zivot and Andrews (J. Business Econ. Stat., 10, 251-70,1992), our study sheds light on the current research on MFA fibers mainly in cottons exported from Mainland China and Hong Kong to the United States. We determine the order of integration of time series variables to avoid spurious regression, as pointed out by Granger and Newbold (Journal of Econometrics, 2, 111-120. 1974). The variables are found as in different orders of integration and hence researchers should take caution when estimating export demand functions. We further investigate whether MFA cotton price and quantity demanded will converge to its arithmetic mean (equilibrium) in desirable period. We find mixed evidences. Finally, we trace the date on which the structural break of the series would take place in response to shock, such as MFA quota abolishment. The break date in year 2000 was detected, and it took about 1.6-6.5 months for the repercussion of the shock to diminish to half of its initial impulse.