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Supply Capacity, Vertical Specialization and Tariff Rates: The Implications for Aggregate U.S. Trade Flow Equations

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  • Menzie D. Chinn

Abstract

This paper re-examines aggregate and disaggregate import and export demand functions for the United States. This re-examination is warranted because (1) income elasticities are too high to be warranted by standard theories, and (2) remain high even when it is assumed that supply factors are important. These findings suggest that the standard models omit important factors. An empirical investigation indicates that the rising importance of vertical specialization combined with decreasing tariffs rates explains some of results. Accounting for these factors yields more plausible estimates of income elasticities, as well as smaller prediction errors.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11719.

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Date of creation: Oct 2005
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Handle: RePEc:nbr:nberwo:11719

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Cited by:
  1. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," Working Papers 142009, Hong Kong Institute for Monetary Research.
  2. Ines Buono & Filippo Vergara Caffarelli, 2013. "Trade elasticity and vertical specialisation," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 924, Bank of Italy, Economic Research and International Relations Area.
  3. Rahman, Mizanur, 2008. "The Impact of a Common Currency on East Asian Production Networks and China’s Exports Behavior," MPRA Paper 13931, University Library of Munich, Germany.

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