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Bias in U.S. Import Prices and Demand

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  • Robert C. Feenstra
  • Clinton R. Shiells

Abstract

The purpose of the paper is to measure the potential bias in the U.S. import price index due to the appearance of new product varieties, or new foreign suppliers, and determine the effect of this bias on the estimated income elasticity of import demand. Existing import price indexes are based on a sample of products from importing firms. We argue that if the share of import expenditure on the sampled products is falling over time, this will lead to an upward bias in the measured index. Using a correction based on the falling expenditure share on sampled countries, we find that the income elasticity of aggregate U.S. import demand is reduced from 2.5 to 1.7, or about halfway to unity. Our estimates suggest that the aggregate import price index is upward biased by about one and one-half percentage points annually.

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File URL: http://www.nber.org/papers/w4841.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4841.

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Date of creation: Aug 1994
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Publication status: published as The Economics of New Goods, Timothy F. Bresnahan and Robert J. Gordon, eds. , pp. 249, (Chicago: University of Chicago Press, 1997).
Handle: RePEc:nbr:nberwo:4841

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References

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  1. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
  2. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  3. Peter Hooper, 1989. "Exchange rates and U.S. external adjustment in the short run and the long run," International Finance Discussion Papers 346, Board of Governors of the Federal Reserve System (U.S.).
  4. Krugman, Paul, 1989. "Differences in income elasticities and trends in real exchange rates," European Economic Review, Elsevier, vol. 33(5), pages 1031-1046, May.
  5. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-28, May.
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Cited by:
  1. Lukas Mohler, 2012. "Variety Gains and the Extensive Margin of Trade," Working papers 2012/16, Faculty of Business and Economics - University of Basel.
  2. Blonigen, Bruce A., 2001. "In search of substitution between foreign production and exports," Journal of International Economics, Elsevier, vol. 53(1), pages 81-104, February.
  3. Naoko Shinkai, 2000. "¿Explica el teorema Stopler-Samuelson el desplazamiento de los salarios? El vínculo entre el comercio internacional y los salarios en países latinoamericanos," Research Department Publications 4238, Inter-American Development Bank, Research Department.
  4. Naoko Shinkai, 2000. "Does the Stopler-Samuelson Theorem Explain the Movement in Wages? The Linkage Between Trade and Wages in Latin American Countries," Research Department Publications 4237, Inter-American Development Bank, Research Department.
  5. Richards, Timothy J. & Patterson, Paul M., 1998. "Dynamic Complementarity In Export Promotion: The Market Access Program In Fruits And Vegetables," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(02), December.
  6. Catherine L. Mann, 2002. "Perspectives on the U.S. Current Account Deficit and Sustainability," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 131-152, Summer.
  7. Robert C. Feenstra, 1996. "U.S. Imports, 1972-1994: Data and Concordances," NBER Working Papers 5515, National Bureau of Economic Research, Inc.
  8. Thomas von Brasch, 2013. "The cost-of-living index with trade barriers," Discussion Papers 751, Research Department of Statistics Norway.
  9. 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.

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