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A century of trade elasticities for Canada, Japan, and the United States

  • Jaime Marquez
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    Virtually all that is known about the behavior of imports rests on studies estimating income and price elasticities with postwar data. But anyone examining the evolution of trade over the last century cannot avoid asking whether the postwar period provides enough information to characterize that behavior. Indeed, the literature ignoring that past offers a large range of elasticity estimates suggesting that the role of income and prices in determining imports is not known with any precision. This paper offers the first analysis ofthat role using data since 1890 for Canada, Japan, and the United States. Estimating the elasticities of the most popular model in the literature with 1890-1992 data, I find that income and prices do not affect imports whereas the opposite conclusion arises with postwar data. The difference in results stems from changes in the composition of expenditures between domestic and foreign products. As an alternative, I consider several models consistent with both optimization and the time-series properties ofthe data. These models predict substantial secular changes in income and price elasticities and confirm the importance of optimization for characterizing the behavior of imports.

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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 531.

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    Date of creation: 1995
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    Handle: RePEc:fip:fedgif:531
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    4. Barnett, William A., 1984. "On the flexibility of the Rotterdam model : A first empirical look," European Economic Review, Elsevier, vol. 24(3), pages 285-289, April.
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    13. Reinhart, Carmen, 1994. "Devaluation, Relative Prices, and International Trade," MPRA Paper 13708, University Library of Munich, Germany.
    14. Zietz, Joachim & Pemberton, Donald K., 1993. "Parameter instability in aggregate US import demand functions," Journal of International Money and Finance, Elsevier, vol. 12(6), pages 654-667, December.
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    20. Timothy A. Deyak & W. Charles Sawyer & Richard L. Sprinkle, 1993. "The Adjustment of Canadian Import Demand to Changes in Income, Prices, and Exchange Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 890-900, November.
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    24. Marquez, Jaime, 1990. "Bilateral Trade Elasticities," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 70-77, February.
    25. Michael C. Deppler & Duncan M. Ripley, 1978. "The World Trade Model: Merchandise Trade," IMF Staff Papers, Palgrave Macmillan, vol. 25(1), pages 147-206, March.
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    28. Goldstein, Morris & Khan, Mohsin S & Officer, Lawrence H, 1980. "Prices of Tradable and Nontradable Goods in the Demand for Total Imports," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 190-99, May.
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