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The International Elasticity Puzzle Is Worse Than You Think

Author

Listed:
  • Lionel Fontagné

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

  • Philippe Martin

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research)

  • Gianluca Orefice

    (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

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," SciencePo Working papers Main hal-01870896, HAL.
    • Handle: RePEc:hal:spmain:hal-01870896
    DOI: 10.1016/j.jinteco.2018.08.011
    Note: View the original document on HAL open archive server: https://hal.science/hal-01870896
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    More about this item

    Keywords

    Elasticity; International Trade and Macroeconomics; Export Price; Firm exports; Firm Exports;
    All these keywords.

    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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