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The International Elasticity Puzzle Is Worse Than You Think

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  • Lionel Fontagné
  • Philippe Martin
  • Gianluca Orefice

Abstract

We estimate three international price elasticities using exporters data: the elasticity of firm exports to export price, tariff and real exchange rate shocks. In standard trade and international macroeconomics models these three elasticities should be equal. We find that this is far from being the case. We use French firm level electricity costs to instrument for export prices and provide a first estimate of the elasticity of firm-level exports to export prices. The elasticity of exports is highest, around 5, for export prices followed by tariffs, around 2, and is lowest for the real exchange rate, around 0.6. The large discrepancy between these elasticities makes us conclude that the international elasticity puzzle is actually worse than previously thought. Moreover, we show that because exporters absorb part of tariffs and exchange rate movements, estimates of export elasticities that do not take into account export prices are biased.

Suggested Citation

  • Lionel Fontagné & Philippe Martin & Gianluca Orefice, 2017. "The International Elasticity Puzzle Is Worse Than You Think," Working Papers 2017-03, CEPII research center.
  • Handle: RePEc:cii:cepidt:2017-03
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    Cited by:

    1. Fitzgerald, Doireann & Haller, Stefanie, 2018. "Exporters and shocks," Journal of International Economics, Elsevier, vol. 113(C), pages 154-171.
    2. Bruno Ducoudre & Nicolas Yol, 2018. "Evaluation de l'impact du CICE par une méthode," Sciences Po publications 30, Sciences Po.
    3. Agnès Bénassy-Quéré & Matthieu Bussière & Pauline Wibaux, 2018. "Trade and currency weapons," Working Papers 2018-08, CEPII research center.
    4. Charlotte Emlinger & Sébastien Jean & Vincent Vicard, 2019. "L’étonnante atonie des exportations françaises : retour sur la compétitivité et ses déterminants," CEPII Policy Brief 2019-24, CEPII research center.
    5. Willem THORBECKE, 2019. "East Asian Value Chains, Exchange Rates, and Regional Exchange Rate Arrangements," Discussion papers 19046, Research Institute of Economy, Trade and Industry (RIETI).
    6. A. Berthou & E. Dhyne, 2018. "Exchange Rate Movements, Firm-Level Exports and Heterogeneity," Working papers 660, Banque de France.
    7. Bruno Ducoudre & Xavier Timbeau & Sébastien Villemot, 2018. "The magnitude of euro area misalignments," Sciences Po publications 45, Sciences Po.

    More about this item

    Keywords

    Elasticity; International Trade and Macroeconomics; Export Price; Firm exports;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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