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Import Demand Elasticities and Trade Distortions

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  • Hiau Looi Kee

    (The Development Research Group of the World Bank.)

  • Alessandro Nicita

    (The Development Research Group of the World Bank. Nicita is also affiliated with UNCTAD in Geneva.)

  • Marcelo Olarreaga

    (The Development Research Group of the World Bank. Olarreaga is also affiliated with the University of Geneva, and CEPR in London.)

Abstract

This paper provides a systematic estimation of import demand elasticities for a broad group of countries at a very disaggregated level of product detail. We use a semiflexible translog GDP function approach to formally derive import demands and their elasticities, which are estimated with data on prices and endowments. Within a theoretically consistent framework, we use the estimated elasticities to construct Feenstra's (1995) simplification of Anderson and Neary's trade restrictiveness index (TRI). The difference between TRIs and import-weighted tariffs is shown to depend on the tariff variance and the covariance between tariffs and import demand elasticities. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.90.4.666
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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 90 (2008)
Issue (Month): 4 (November)
Pages: 666-682

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Handle: RePEc:tpr:restat:v:90:y:2008:i:4:p:666-682

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  1. Feenstra, R.C., 1995. "Estimating the Effects of Trade Policy," Papers 95-10, California Davis - Institute of Governmental Affairs.
  2. Shah, Shekhar & Mishra, Deepak & Panagariya, Arvind, 1996. "Demand elasticities in international trade : are they really low?," Policy Research Working Paper Series 1712, The World Bank.
  3. Winters, L. Alan, 1984. "Separability and the specification of foreign trade functions," Journal of International Economics, Elsevier, vol. 17(3-4), pages 239-263, November.
  4. Athukorala, Premachandra & Riedel, James, 1994. "Demand and Supply Factors in the Determination of NIE Exports: A Simultaneous Error-Correction Model for Hong Kong: A Comment," Economic Journal, Royal Economic Society, vol. 104(427), pages 1411-14, November.
  5. Riedel, James, 1988. "The Demand for LDC Exports of Manufactures: Estimates from Hong Kong," Economic Journal, Royal Economic Society, vol. 98(389), pages 138-48, March.
  6. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  7. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  8. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  9. Harrigan, James, 1997. "Technology, Factor Supplies, and International Specialization: Estimating the Neoclassical Model," American Economic Review, American Economic Association, vol. 87(4), pages 475-94, September.
  10. J Anderson & J.P. Neary, 1998. "The Mercantilist Index of Trade Policy," CEP Discussion Papers dp0413, Centre for Economic Performance, LSE.
  11. Anderson, James E & Neary, J Peter, 1992. "Trade Reform with Quotas, Partial Rent Retention, and Tariffs," Econometrica, Econometric Society, vol. 60(1), pages 57-76, January.
  12. James E. Anderson & J. Peter Neary, 2004. "Welfare versus Market Access: The Implications of Tariff Structure for Tariff Reform," Boston College Working Papers in Economics 601, Boston College Department of Economics.
  13. Gallaway, Michael P. & McDaniel, Christine A. & Rivera, Sandra A., 2003. "Short-run and long-run industry-level estimates of U.S. Armington elasticities," The North American Journal of Economics and Finance, Elsevier, vol. 14(1), pages 49-68, March.
  14. J Anderson & J.P. Neary, 1994. "Measuring the Restrictiveness of Trade Policy," CEP Discussion Papers dp0186, Centre for Economic Performance, LSE.
  15. 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.
  16. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
  17. Marquez, Jaime, 1999. "Long-Period Trade Elasticities for Canada, Japan, and the United States," Review of International Economics, Wiley Blackwell, vol. 7(1), pages 102-16, February.
  18. Robert C. Feenstra, 1992. "How Costly Is Protectionism?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 159-178, Summer.
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