IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Do Imports Crowd Out Domestic Consumption? A Comparative Study of China, Japan and Korea

  • Chuanglian Chen
  • Guojin Chen
  • Shujie Yao
Registered author(s):

    A decline in the relative price of imported goods compared to that of domestically produced goods may have different effects on domestic consumption. Such effects may not be accurately detected and measured in a classical permanent-income model without considering consumption habit formation as pointed out by Nishiyama (2005). To resolve this problem, this paper employs an extended permanent-income model which encompasses consumption habit formation. Both cointegration analysis and GMM are used to estimate the (modified) intertemporal elasticities of substitution (IES) between imports and domestic consumption and the parameters of habit formation as well as the (modified) intratemporal elasticities of substitution (AES). We find that import and domestic consumptions are complements in China, but substitutes in Japan and Korea. Different per capita incomes and consumer behaviors between China and the other two countries are two possible reasons for different relationships between import and domestic consumptions. The research findings have important implications on policies such as exchange rate adjustments in China.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.nottingham.ac.uk/gep/documents/papers/2011/11-03.pdf
    Download Restriction: no

    Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 11/03.

    as
    in new window

    Length:
    Date of creation:
    Date of revision:
    Handle: RePEc:not:notgep:11/03
    Contact details of provider: Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
    Phone: (44) 0115 951 5620
    Fax: (0115) 951 4159
    Web page: http://www.nottingham.ac.uk/gep/index.aspx

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Wayne E. Ferson & George M. Constantinides, 1991. "Habit Persistence and Durability in Aggregate Consumption: Empirical Tests," NBER Working Papers 3631, National Bureau of Economic Research, Inc.
    2. Boldrin, M. & Christiano, L.J. & Fischer, J.D.M., 1996. "Asset Pricing Lessons for Modeling Business Cycles," Papers 268, Banca Italia - Servizio di Studi.
    3. Croix,David,de la & Urbain,Jean-Pierre, 1996. "Intertemporal substitution in import demand and habit formation ," Research Memorandum 003, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    4. John MUELLBAUER, 1988. "Habits, Rationality and Myopia in the Life Cycle Consumption Function," Annales d'Economie et de Statistique, ENSAE, issue 9, pages 47-70.
    5. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    6. Eichenbaum, Martin S & Hansen, Lars Peter & Singleton, Kenneth J, 1988. "A Time Series Analysis of Representative Agent Models of Consumption and Leisure Choice under Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 51-78, February.
    7. Hansen, Bruce E, 1992. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 321-35, July.
    8. Hiau Looi Kee & Alessandro Nicita & Marcelo Olarreaga, 2008. "Import Demand Elasticities and Trade Distortions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 666-682, November.
    9. Richard H. Clarida, 1991. "Co-Integration, Aggregate Consumption, and the Demand For Imports: A Structural Econometric Investigation," NBER Working Papers 3812, National Bureau of Economic Research, Inc.
    10. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
    11. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
    12. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
    13. Nieh, Chien-Chung & Ho, Tsung-wu, 2006. "Does the expansionary government spending crowd out the private consumption?: Cointegration analysis in panel data," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(1), pages 133-148, February.
    14. Shin-Ichi Nishiyama, 2005. "The cross-Euler equation approach to intertemporal substitution in import demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(7), pages 841-872.
    15. Ogaki, M., 1990. "Engel'S Law And Cointegration," RCER Working Papers 228, University of Rochester - Center for Economic Research (RCER).
    16. Naik, Narayan Y & Moore, Michael J, 1996. "Habit Formation and Intertemporal Substitution in Individual Food Consumption," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 321-28, May.
    17. repec:att:wimass:9220 is not listed on IDEAS
    18. Robert A. Amano & Wai-Ming Ho & Tony S. Wirjanto, 1999. "Intraperiod and Intertemporal Substitution in Import Demand," Cahiers de recherche CREFE / CREFE Working Papers 84, CREFE, Université du Québec à Montréal.
    19. Ceglowski, Janet, 1991. "Intertemporal substitution in import demand," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 118-130, March.
    20. Amano, Robert A. & Wirjanto, Tony S., 1996. "Intertemporal substitution, imports and the permanent income model," Journal of International Economics, Elsevier, vol. 40(3-4), pages 439-457, May.
    21. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    22. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 631-53, October.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:not:notgep:11/03. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hilary Hughes)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.