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Price and income elasticities: evidence from commodity trade between the U.S. and Egypt

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  • Mohsen Bahmani-Oskooee
  • Amr Hosny

Abstract

Elasticity approach to balance of payments postulates that a country can enjoy an improvement in its trade balance in the long run if sum of import and export demand price elasticities exceed unity, a condition known as the Marshall-Lerner condition. Previous research tested this condition either using aggregate trade data between one country and rest of the world or between two countries and provided mixed results. They are all said to suffer from aggregation bias. To remove the bias, in this paper we concentrate on trade flows of two countries, i.e., the U.S. and Egypt and disaggregate their trade flows by commodity. The estimates reveal that the ML condition is met in 28 out of 36 industries that trade between the two countries. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Mohsen Bahmani-Oskooee & Amr Hosny, 2014. "Price and income elasticities: evidence from commodity trade between the U.S. and Egypt," International Economics and Economic Policy, Springer, vol. 11(4), pages 561-574, December.
    • Handle: RePEc:kap:iecepo:v:11:y:2014:i:4:p:561-574
    DOI: 10.1007/s10368-014-0266-y
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    More about this item

    Keywords

    The Marshall-Lerner Condition; Egypt; The U.S; Commodity Trade; F31;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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