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A supply and demand model of bilateral trade in a multicountry framework

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  • Geraci, Vincent J.
  • Prewo, Wilfried
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    Abstract

    This study develops a practical supply and demand model of bilateral trade flows. The model is constructed in two tiers. First, aggregate import demand and aggregate export supply are determined from aggregate economic relations that contain real income (output) and relative prices. Second, bilateral import demand and bilateral export supply are determined from theory-based allocation relations. By differentiating import prices from export prices, the analysis incorporates international transportation costs and tariffs. The result is a simultaneous system that determines bilateral trade flows and bilateral prices given country incomes, domestic price levels and international transmission factors. The model in dynamic form is estimated from a panel of bilateral trade flows for five major OECD countries (United States, Japan, France, West Germany, United Kingdom) for the years 1958-1971. The model has many applications, e.g. in the analyses of the impacts on trade flows of differential economic growth rates and tariff policies. These policy aspects figure prominently in the current discussions among the major OECD countries.

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 84.

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    Date of creation: 1978
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    Handle: RePEc:kie:kieliw:84

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    1. Khan, Mohsm S. & Ross, Knud Z., 1977. "The functional form of the aggregate import demand equation," Journal of International Economics, Elsevier, vol. 7(2), pages 149-160, May.
    2. Artus, Jacques R., 1973. "The short-run effects of domestic demand pressure on export delivery delays for machinery," Journal of International Economics, Elsevier, vol. 3(1), pages 21-36, February.
    3. Paul S. Armington, 1969. "The Geographic Pattern of Trade and the Effects of Price Changes (Structure géographique des échanges et incidences des variations de prix) (Estructura geográfica del comercio y efectos de la," IMF Staff Papers, Palgrave Macmillan, vol. 16(2), pages 179-201, July.
    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. 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.
    6. Hickman, Bert G. & Lau, Lawrence J., 1973. "Elasticities of substitution and export demands in a world trade model," European Economic Review, Elsevier, vol. 4(4), pages 347-380, December.
    7. Resnick, Stephen A. & Truman, Edwin M., 1973. "An empirical examination of bilateral trade in Western Europe," Journal of International Economics, Elsevier, vol. 3(4), pages 305-335, November.
    8. Goldstein, Morris & Khan, Mohsin S, 1978. "The Supply and Demand for Exports: A Simultaneous Approach," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 275-86, May.
    9. Maccini, Louis J, 1978. "The Impact of Demand and Price Expectations on the Behavior of Prices," American Economic Review, American Economic Association, vol. 68(1), pages 134-45, March.
    10. Clements, Kenneth W, 1980. "A General Equilibrium Econometric Model of the Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 469-88, June.
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