(2) Derive an offer curve for Kenya, which produces tea and cotton.
(3) How do Offer Curves help in determining the Terms of Trade (TOT)? (Assume that Kenya trades with Egypt, and Kenya exports tea).
(4) Under free trade, what are the effects on the volume of trade and TOT if Kenya imposes import duties on cotton from Egypt?
Give clear explanations as well as diagrams
The data consists of Egypt tea imports and import values from six countries , China, India, Indonesia, Kenya, Sir Lanka, and UK.
The rest of the world countries were summed in one variable named ROW. The annually data of quantity and import values were obtained from FAO database for the period between 1990 and 2009. Unit value of import was used as a proxy for price.
The simplicity and less Computational burden model was very popular for empirical demand analysis.
The procedure of model estimates are as follows
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