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A re-assessment of German import demand

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Author Info
Sabine Stephan () (IMK at the Hans Boeckler Foundation)
Abstract

Empirical studies analysing German import demand functions traditionally report implausibly high income and relativly low price elasticities. Furthermore, estimation results strongly depend on the observation period. Minor variations in the estimation period typically lead to insignificant price terms often displaying the wrong sign. Based on an extensive econometric analysis, the author shows that these problems are caused by the use of highly aggregated activity variables (GDP or total demand). The problem is easily solved if GDP components, namely exports and investment, are used to model domestic economic activity. We find that imports, exports, investment, and a relative import price form highly stable cointegration relationships. The corresponding activity elasticity is clearly below 1 and the price elasticity is highly significant. Changes in the estimation period neither change the impact nor the significance of the determinants of imports.

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Publisher Info
Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 08-2007.

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Length: 34 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:imk:wpaper:08-2007

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Related research
Keywords: German import demand equation; price elasticity; income elasticity; activity elasticity; aggregation problems; error correction model;

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Warner, Dennis & Kreinin, Mordechai E, 1983. "Determinants of International Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 96-104, February. [Downloadable!] (restricted)
  2. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September. [Downloadable!] (restricted)
  3. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November. [Downloadable!] (restricted)
    Other versions:
  4. Abdelhak Senhadji, 1998. "Time Series Estimation of Structural Import Demand Equations: A Cross-Country Analysis," IMF Staff Papers, Palgrave Macmillan Journals, vol. 45(2), pages 2. [Downloadable!] (restricted)
  5. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier. [Downloadable!] (restricted)
  6. Goldstein, Morris & Khan, Mohsin S & Officer, Lawrence H, 1980. "Prices of Tradable and Nontradable Goods in the Demand for Total Imports," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 190-99, May. [Downloadable!] (restricted)
  7. Doornik, Jurgen A, 1998. " Approximations to the Asymptotic Distributions of Cointegration Tests," Journal of Economic Surveys, Blackwell Publishing, vol. 12(5), pages 573-93, December. [Downloadable!] (restricted)
  8. Ray Barrell & Dirk Willem te Velde, 2002. "European Integration and Manufactures Import Demand: An Empirical Investigation of Ten European Countries," German Economic Review, Blackwell Publishing, vol. 3(3), pages 263-293, 08. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
    Other versions:
  11. Khan, Mohsin S & Ross, Knud Z, 1975. "Cyclical and Secular Income Elasticities of the Demand for Imports," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 357-61, August. [Downloadable!] (restricted)
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