Demand elasticities in international trade: are they really low?
The authors analyze the U.S. demandfor Bangladeshi imports for products restricted under the Multifiber Arrangement. Because Bangladesh is only a small supplier of these products and Latin American and Asian countries can supply close substitutes, the authors expected a high elasticity of demand for Bangladeshi imports, and they found consistently high estimates based on statistically significant coefficients. Their finding accords with trade theorists'prejudice that small countries can essentially behave as price takers, but conflicts with the empirical literature view that demand elasticities are low, rarely exceeding 3 and generally between 1 and 2. The authors'analysis differs from the existing literature in three ways: they derive a set of estimation equations from an explicit, utility-maximization model and use the estimated parameters of the utility function to obtain the Marshallian own-price and cross-price elasticities as well as the income elasticity of demand; they take explicit account of U.S. imports from competitors of Bangladesh, relying directly on competitors'prices; and they use highly disaggregated data that make the unit value of exports a better proxy for price than using aggregated export data commonly used in this literature. The authors outline their theoretical model for deriving their estimated equations in Section 1; preliminarily determine who Bangladesh's competitors are in Section 2; and estimate the demand equation derived in Section 1, and derive the price and income elasticities facing Bangladesh in Section 3.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Muscatelli, Vito Antonio & Srinivasan, T G & Vines, David, 1992. "Demand and Supply Factors in the Determination of NIE Exports: A Simultaneous Error-Correction Model for Hong Kong Exports," CEPR Discussion Papers 671, C.E.P.R. Discussion Papers.
- Riedel, James, 1989. "The Demand for LDC Exports of Manufactures: Estimates from Hong Kong: A Rejoinder," Economic Journal, Royal Economic Society, vol. 99(396), pages 467-70, June.
- Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
- 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.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- Premachandra Athukorala & James Riedel, 1991. "The small country assumption: A reassessment with evidence from Korea," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(1), pages 138-151, March.
- 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.
- Dean, Judith M, 1990. "The Effects of the U.S. MFA on Small Exporters," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 63-69, February.
- Panagariya, A. & Quibria, M.G. & Rao, N., 1996. "The Emerging Global Trading Environment and Developing Asia," Papers 55, Asian Development Bank.
- Riedel, James, 1988. "The Demand for LDC Exports of Manufactures: Estimates from Hong Kong," Economic Journal, Royal Economic Society, vol. 98(389), pages 138-48, March.
- 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.
- Trela, I. & Whalley, J., 1989.
"Unravelling The Threads Of The Mfa,"
448, Stockholm - International Economic Studies.
- Trela, I. & Whalley, J., 1989. "Unravelling The Threads Of The Mfa," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 8904c, University of Western Ontario, The Centre for the Study of International Economic Relations.
- Lucas, Robert E. B., 1988. "Demand for India's manufactured exports," Journal of Development Economics, Elsevier, vol. 29(1), pages 63-75, July.
- Ghose, Devajyoti & Kharas, Homi, 1993. "International competitiveness, the demand for exports and real effective exchange rates in developing countries," Journal of Development Economics, Elsevier, vol. 41(2), pages 377-398, August.
- Winters, L. Alan, 1984. "Separability and the specification of foreign trade functions," Journal of International Economics, Elsevier, vol. 17(3-4), pages 239-263, November.
- Nguyen, D T, 1989. "The Demand for LDC Exports of Manufactures: Estimates from Hong Kong: A Comment," Economic Journal, Royal Economic Society, vol. 99(396), pages 461-66, June.
When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:64:y:2001:i:2:p:313-342. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.