Export Sophistication and Trade Elasticities

Does a country's export structure impact the way that exchange rates affect trade? Do more sophisticated products exhibit lower demand elasticities? Using panel data for major exporters over the 1992-2016 period and dynamic ordinary least squares techniques, we find that price elasticities are higher for low-technology goods such as textiles and footwear than for high-technology goods such as pharmaceuticals and medical equipment. We also find that elasticities are larger for less advanced countries such as China than for more advanced countries such as Switzerland. We draw policy implications from these findings for countries exposed to safe haven capital flows, for countries facing long-term appreciation pressures, and for countries that specialize in low-technology exports.