Lebanon’s PMI Exports Subindex as a Leading Indicator for Total Exports – An Empirical Investigation

• Introduction

In this study, we aim to examine the relationship between new export orders (NEO) and total exports in the context of Lebanon. ‘New export orders’ is a subindex of the PMI that tracks foreign demand for both goods and services. Like the PMI, it is expressed as a diffusion index that ranges between 0 and 100. A reading above 50 indicates expansionary territory, whereby there is an increase in demand for Lebanese exports. Inversely, a reading below 50 indicates contraction, whereby there is a decrease in demand for Lebanese exports. Total exports include both goods and services exported from Lebanon. Both of these variables are generally considered to be correlated given a time lag, as the subindex is a leading indicator. We used a simple linear regression model with distributed lags to study the effect of the point change in NEO on the log change in total exports. Later, we built upon this model, combining several lagged terms and other variables for diagnostic reasons in order to assess the relationship more comprehensively.

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