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World trade and global integration in production processes: a re-assessment of import demand equations

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  • Barrell, Ray
  • Dées, Stéphane

Abstract

It is common to observe that demand elasticities in trade equations for imports are implausibly large, and that they differ between countries. Both of these present us with problems, as they imply trade will rise without bound as a proportion of GDP. The research reported here looks for alternative empirical evidence of possible factors driving the increase in trade as a proportion of GDP. We show that the inclusion of the ratios of outward and inward FDI to GDP as additional openness and globalisation indicators appear to remove the spurious accuracy with which we are measuring demand elasticities. JEL Classification: F10, F23

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0503.

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Date of creation: Jul 2005
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Handle: RePEc:ecb:ecbwps:20050503

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Keywords: FDI; international trade;

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  1. Rachel Griffith, 1999. "Using the ARD establishment level data to look at foreign ownership and productivity in the UK," IFS Working Papers W99/06, Institute for Fiscal Studies.
  2. Fagerberg, Jan, 1996. "Technology and Competitiveness," Oxford Review of Economic Policy, Oxford University Press, vol. 12(3), pages 39-51, Autumn.
  3. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  4. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, vol. 14(3-4), pages 341-356, May.
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  6. Pesaran, H. & Smith, R. & Im, K.S., 1995. "Dynamic Linear Models for Heterogeneous Panels," Cambridge Working Papers in Economics 9503, Faculty of Economics, University of Cambridge.
  7. Antoine Magnier & Joël Toujas-Bernate, 1994. "Technology and trade: Empirical evidences for the major five industrialized countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(3), pages 494-520, September.
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Cited by:
  1. Kichun Kang, 2012. "Is the "Houthakker-Magee" Finding Durable? Evidence from Disaggregated Trade Flows between China and Korea," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 299-316, November.
  2. Beck, Roland & Kamps, Annette, 2009. "Petrodollars and imports of oil exporting countries," Working Paper Series 1012, European Central Bank.
  3. Stirböck, Claudia, 2006. "How strong is the impact of exports and other demand components on German import demand? Evidence from euro-area and non-euro-area imports," Discussion Paper Series 1: Economic Studies 2006,39, Deutsche Bundesbank, Research Centre.
  4. Karel Havik & Kieran Mc Morrow, 2006. "Global trade integration and outsourcing : How well is the EU coping with the new challenges?," European Economy - Economic Papers 259, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. Menzie D. Chinn, 2005. "Supply Capacity, Vertical Specialization and Tariff Rates: The Implications for Aggregate U.S. Trade Flow Equations," NBER Working Papers 11719, National Bureau of Economic Research, Inc.
  6. Sabine Stephan, 2007. "A re-assessment of German import demand," IMK Working Paper 08-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  7. Dr Tatiana Fic & Ray Barrell & Dawn Holland, 2006. "Entry rates and the risks of misalignment in the EU8," NIESR Discussion Papers 1261, National Institute of Economic and Social Research.
  8. repec:nsr:niesrd:289 is not listed on IDEAS

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