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Trade elasticities

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  • Jean Imbs
  • Isabelle Mejean

Abstract

We estimate the aggregate export and import price elasticities implied by a Constant Elasticity of Substitution (CES) demand system, for more than 30 countries at various stages of development. Trade elasticities are given by weighted averages of sector-specific elasticities of substitution, that we estimate structurally. Both weights and substitution elasticities can be chosen to compute the response of trade to specific shocks to relative prices, bilateral or global. We document considerable, significant cross-country heterogeneity in multi-lateral trade elasticities, which is virtually absent from estimates constrained to mimic aggregate data. The international dispersion in import price elasticities depends mostly on preference parameters, whereas export price elasticites vary with the composition of trade. We simulate the demand-based response of trade to specific exogenous shifts in international prices. We consider shocks to EMU-wide, US or China's relative prices, as well as country-specific shocks within the EMU zone. The trade responses to an external EMU-shock are considerably heterogeneous across member countries; in contrast, a within-EMU (Greek, Portuguese, German) shock to relative prices has largely homogeneous consequences on Eurozone trade patterns. PRELIMINARY AND INCOMPLETE.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Proceedings.

Volume (Year): (2010)
Issue (Month): Oct ()
Pages:

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Handle: RePEc:fip:fedfpr:y:2010:i:oct:x:5

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  1. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains from Variety," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 541-585, May.
  2. Murray C. Kemp, 1962. "Errors Of Measurement And Bias In Estimates Of Import Demand Parameters1," The Economic Record, The Economic Society of Australia, vol. 38(83), pages 369-372, 09.
  3. International Monetary Fund, 2009. "Elasticity Optimism," IMF Working Papers 09/279, International Monetary Fund.
  4. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May.
  5. John Romalis, 2005. "NAFTA's and CUSFTA's Impact on International Trade," NBER Working Papers 11059, National Bureau of Economic Research, Inc.
  6. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
  7. Joseph E. Gagnon, 2007. "Productive Capacity, Product Varieties, and the Elasticities Approach to the Trade Balance," Review of International Economics, Wiley Blackwell, vol. 15(4), pages 639-659, 09.
  8. Marquez, Jaime, 1990. "Bilateral Trade Elasticities," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 70-77, February.
  9. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
  10. Bruce A. Blonigen & Wesley W. Wilson, 1999. "Explaining Armington: What Determines Substitutability Between Home and Foreign Goods?," Canadian Journal of Economics, Canadian Economics Association, vol. 32(1), pages 1-21, February.
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Cited by:
  1. Ina Simonovska & Michael Waugh, 2011. "The Elasticity of Trade: Estimates and Evidence," Working Papers 112, University of California, Davis, Department of Economics.
  2. Andrei A Levchenko & Jing Zhang, 2013. "The Global Labor Market Impact of Emerging Giants: A Quantitative Assessment," IMF Economic Review, Palgrave Macmillan, vol. 61(3), pages 479-519, August.

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