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The International Elasticity Puzzle Is Worse Than You Think

Author

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  • Lionel Fontagné

    () (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics)

  • Philippe Martin

    () (IEP Paris - Sciences Po Paris - Institut d'études politiques de Paris)

  • Gianluca Orefice

    (Centre d'Etudes Prospectives et d'Informations Internationales)

Abstract

We instrument export prices with firm level electricity cost shocks and estimate three international price elasticities using firm-level export data: the elasticity of firm exports to export price, tariff and real exchange rate shocks. In standard models these three elasticities should be equal. We find that this is far from being the case. The export price elasticity is the highest, around 5, much larger than the exchange rate elasticity. The international elasticity puzzle is therefore worse than previously thought. We also show that exporters absorb one third of tariff changes in their export prices. Because we take into account this reaction of export prices to tariffs, our estimate of the tariff elasticity corrects from this omitted-variable bias.

Suggested Citation

  • Lionel Fontagné & Philippe Martin & Gianluca Orefice, 2018. "The International Elasticity Puzzle Is Worse Than You Think," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01870896, HAL.
  • Handle: RePEc:hal:cesptp:hal-01870896
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01870896
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Agnès Bénassy-Quéré & Matthieu Bussière & Pauline Wibaux, 2018. "Trade and currency weapons," Working Papers 2018-08, CEPII research center.
    2. 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.
    3. repec:eee:inecon:v:118:y:2019:i:c:p:217-232 is not listed on IDEAS
    4. repec:eee:inecon:v:113:y:2018:i:c:p:154-171 is not listed on IDEAS
    5. Bruno Ducoudre & Xavier Timbeau & Sébastien Villemot, 2018. "The magnitude of euro area misalignments," Sciences Po publications 45, Sciences Po.
    6. 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).
    7. Antoine Berthou & Emannuel Dhyne, 2018. "Exchange rate movements,firm-level exports and heterogeneity," Working Paper Research 334, National Bank of Belgium.
    8. Fitzgerald, Doireann & Haller, Stefanie, 2018. "Exporters and shocks," Journal of International Economics, Elsevier, vol. 113(C), pages 154-171.
    9. Bruno Ducoudre & Nicolas Yol, 2018. "Evaluation de l'impact du CICE par une méthode," Sciences Po publications 30, 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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