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Import demand in heterogeneous panel data with cross-sectional dependence

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  • Tullio Gregori
  • Marco Giansoldati

Abstract

We investigate the long-run income and price elasticity of import demand functions with a heterogeneous unbalanced panel of 34 countries over the period 1985:q1-2018:q3. To estimate world elasticities the model is tested with the activity variables derived from the theoretical and empirical literature: GDP, GDP minus exports, Private Demand, Aggregate Domestic Demand, National Cash Flow, and Import intensity-Adjusted Demand (IAD). First, we evaluate time series properties using second generation panel unit root and cointegration tests. Second, we rely on the dynamic common correlated effects mean groups (CCEMG) estimator to deal with cross-sectional dependence (CSD). We find that the IAD, whose world elasticity is close to one, is the best performing specification. Our results confirm that the most appropriate activity variable to assess import demand should encompass intermediate goods as suggested by the recent literature on global supply chains. Moreover, we partially solve the puzzle of the recent trade slowdown since, taking stock of the role of intermediates, the time needed to resort to the long run equilibrium in the aftermath of a global turmoil is greater than that predicted by previous studies.

Suggested Citation

  • Tullio Gregori & Marco Giansoldati, 2020. "Import demand in heterogeneous panel data with cross-sectional dependence," Applied Economics, Taylor & Francis Journals, vol. 52(5), pages 443-458, January.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:5:p:443-458
    DOI: 10.1080/00036846.2019.1645944
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    Citations

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    Cited by:

    1. Simola, Heli, 2021. "Trade collapse during the covid-19 crisis and the role of demand composition," BOFIT Discussion Papers 12/2021, Bank of Finland, Institute for Economies in Transition.
    2. repec:zbw:bofitp:2021_012 is not listed on IDEAS
    3. Cícero, Vinicius Curti & Lima, Gilberto Tadeu, 2023. "Functional distribution of income as a determinant of importing behavior: An empirical analysis," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 393-405.
    4. Simola, Heli, 2021. "Trade collapse during the covid-19 crisis and the role of demand composition," BOFIT Discussion Papers 12/2021, Bank of Finland Institute for Emerging Economies (BOFIT).
    5. Çetin, Murat & Sarıgül, Sevgi Sümerli & Işık, Cem & Avcı, Pınar & Ahmad, Munir & Alvarado, Rafael, 2023. "The impact of natural resources, economic growth, savings, and current account balance on financial sector development: Theory and empirical evidence," Resources Policy, Elsevier, vol. 81(C).
    6. Ioanna Konstantakopoulou, 2020. "Further Evidence on Import Demand Function and Income Inequality," Economies, MDPI, vol. 8(4), pages 1-12, October.
    7. Gregori, Tullio, 2021. "Protectionism and international trade: A long-run view," International Economics, Elsevier, vol. 165(C), pages 1-13.

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