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Price and Volume Elasticities of Brazilian Foreign Trade: A Profit Function Approach


  • Luiz de Mello


  • Mauro Pisu



Brazil, like other natural resource-exporting countries, has benefited from a sharp increase in commodity prices over the last few years. To investigate the possible impact of terms-of-trade gains on the real economy, this paper estimates normalised quadratic input demand and output supply functions for the Brazilian economy during 1997-2008. Technological change is modelled in a flexible manner through the inclusion of quadratic splines in the profit function. The paper contributes to the literature by using nonlinear seemingly unrelated regression techniques to estimate the input demand and output supply functions and by disaggregating exports and imports into capital, consumption and intermediate goods. Improvements in the terms of trade due to rising export prices and/or falling import prices are associated with hikes in export volumes on the back of rising import demand and some labour shedding in the sectors using imported capital goods. The direct impact of terms-of-trade changes on domestic consumption and investment is comparatively modest, possibly due to the fact that the Brazilian economy remains relatively closed to trade. Les élasticités des prix et volumes du commerce extérieur brésilien : Une approche de fonction de profit Le Brésil, comme les autres pays exportateurs de matières premières, a bénéficié d’une forte augmentation des prix des ces matières au cours de ces dernières années. Ce document estime des fonctions quadratiques normalisées de demande des inputs et d’offre des outputs pour analyser l’impact des gains du terme de l’échange sur l’économie réelle sur la période de 1997 a 2008. Le changement technologique est modélisé d’une manière flexible en introduisant des splines quadratiques sur les régressions. Des techniques de régression non linéaire seemingly unrelated ont été utilisées pour estimer les fonctions de demande et d’offre. Les exportations et les importations ont été désagrégées en biens de capital, de consommation et intermédiaires. Les principaux apports de ce document sont que les variations du terme de l’échange à cause d’une augmentation du prix des exportations et/ou d’une baisse du prix des importations sont associées à une hausse du volume des exportations, à une augmentation des importations et à une réduction de l’emploi dans les secteurs utilisant des biens de capital importés. L’impact direct de l’évolution du terme de l échange sur la consommation intérieure et l’investissement est comparativement faible, peut-être à cause du fait que l’économie brésilienne reste relativement fermée.

Suggested Citation

  • Luiz de Mello & Mauro Pisu, 2009. "Price and Volume Elasticities of Brazilian Foreign Trade: A Profit Function Approach," OECD Economics Department Working Papers 704, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:704-en

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    fonction profit; NQQS; NQQS; profit function; régression seemingly unrelated; seemingly unrelated regression; termes de l’échange; terms of trade;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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