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Estimating elasticities for U.S. trade in services

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  • Jaime R. Marquez

Abstract

Explanations of the persistent deficit in U.S. net exports of goods rest on macroeconomic developments and an asymmetry in elasticities: the income elasticity for imports being larger than the income elasticity for exports. Such macroeconomic developments are not applicable to the equally persistent surplus in U.S. net exports of services unless the income elasticities for services exhibit the reversed asymmetry. There have been surprisingly few attempts to demonstrate the existence of this reversed asymmetry, a task that I undertake here. Specifically, I estimate income and price elasticities for U.S. trade in services and evaluate the importance of simultaneity and aggregation biases. The analysis reveals two findings. First, the income elasticity for U.S. exports of services is significantly greater than the income elasticity for U.S. imports of services. Second, disaggregation is the most important aspect of econometric design in this area.

Suggested Citation

  • Jaime R. Marquez, 2005. "Estimating elasticities for U.S. trade in services," International Finance Discussion Papers 836, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:836
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    References listed on IDEAS

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    1. Fukunari Kimura & Hyun-Hoon Lee, 2006. "The Gravity Equation in International Trade in Services," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(1), pages 92-121, April.
    2. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47.
    3. Catherine L. Mann, 2004. "The US Current Account, New Economy Services, and Implications for Sustainability," Review of International Economics, Wiley Blackwell, vol. 12(2), pages 262-276, May.
    4. Granger, Clive W.J. & Hendry, David F., 2005. "A Dialogue Concerning A New Instrument For Econometric Modeling," Econometric Theory, Cambridge University Press, vol. 21(01), pages 278-297, February.
    5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    6. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-125, May.
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    Cited by:

    1. repec:eee:inteco:v:151:y:2017:i:c:p:85-99 is not listed on IDEAS
    2. Thomas, P Mini, 2015. "Estimation of the Key Economic Determinants of Services Trade: Evidence from India," Working Papers 348, Institute for Social and Economic Change, Bangalore.

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    Keywords

    International trade - Econometric models ; Elasticity (Economic);

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