Estimating Trade ElasticitiesOne cannot exaggerate the importance of estimating how international trade responds to changes in income and prices. But there is a tension between whether one should use models that fit the data but that contradict certain aspects of the underlying theory or models that fit the theory but contradict certain aspects of the data. The essays in Estimating Trade Elasticities book offer one practical approach to deal with this tension. The analysis starts with the practical implications of optimising behaviour for estimation and it follows with a re-examination of the puzzling income elasticity for US imports that three decades of studies have not resolved. The analysis then turns to the study of the role of income and prices in determining the expansion in Asian trade, a study largely neglected in fifty years of research. With the new estimates of trade elasticities, the book examines how they assist in restoring the consistency between elasticity estimates and the world trade identity. The material in Estimating Trade Elasticities will be of interest to economists working in predicting the evolution of international trade and its domestic repercussions. Practitioners in the International Monetary Fund, the World Bank, the OECD, and Central Banks with a keen interest in international developments will benefit from the analysis in this book. |
Contents
Introduction | 1 |
12 Outline of the Essays | 5 |
Modeling Considerations | 7 |
211 Optimization and Constant Elasticities Intermediate Products | 8 |
212 Optimization and Varying Elasticities | 11 |
22 Statisticians Hat | 13 |
222 Practitioners Dilemma | 16 |
223 Cointegration Methodology | 17 |
352 World Trade Identity | 56 |
Summary of Results | 58 |
37 Appendices | 59 |
372 Illiquidity Date | 62 |
373 Aggregation Immigration and Imports | 64 |
374 Parameter Constancy | 67 |
375 Observational Equivalence to a Trend | 75 |
376 Sensitivity to the Level of Disaggregation | 77 |
23 Accountants Hat | 20 |
231 Analytical Framework | 21 |
232 Empirical Evidence | 22 |
24 Appendices | 24 |
242 Computing Equilibrium Real Exchange Rates | 27 |
243 Details on Accuracy versus Consistency | 28 |
244 Chronology of Empirical Studies | 30 |
Elasticities for US Imports | 37 |
32 Previous Strategies | 40 |
321 Separation of Secular and Cyclical Forces | 41 |
322 Relaxation of Price Homogeneity | 42 |
323 Previous Strategies Reexamined | 43 |
33 Recent Strategies | 44 |
332 Imports and Immigration | 47 |
34 Econometric Analysis | 51 |
342 Results | 52 |
35 Implications of Estimates | 55 |
377 Sensitivity to the Choice of Model | 80 |
378 Sensitivity to the Estimation Sample | 82 |
379 Illegal Immigrants and Initial Conditions | 87 |
3710 Immigration and HouthakkerMagee | 89 |
Elasticities for Asian Trade | 91 |
41 Empirical Framework | 93 |
412 Data | 94 |
42 Empirical Results | 96 |
43 Implications of Estimates | 97 |
432 World Trade Identity | 100 |
44 Appendices | 103 |
442 Parameter Constancy | 105 |
443 Data Sources | 111 |
Conclusions | 113 |
Bibliography | 115 |
| 133 | |
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Common terms and phrases
Asian assume assumption asymmetry Chow Tests cointegration constant elasticities demand for imports domestic Econometric elasticities for exports Elasticities for U.S. elasticity estimates elasticity puzzle equation Errors for Exports estimated income elasticity estimated price elasticity estimates are statistically Feenstra Figure Forecast Errors formulation G-7 countries Homoskedasticity Houthakker and Magee Ideal models immigration model imply import demand import prices import-GDP ratio imports and immigration income and price income and relative increase Indonesia International Monetary Fund Johansen Kohli Korea linear ln pt ln yt log-linear C,J,O,U log-linear model Malaysia Marquez method misalignment Ndn CHOWS Null Hypothesis Nup CHOWS 0.75 p-value parameter constancy percent Philippines predictive accuracy price effects price elasticities price-bias model real exchange rate relative prices residuals Rotterdam Model Serial independence share of foreign-born Significance of Forecast Singapore Source statistically significant studies Taiwan Thailand trend U.S. dollar U.S. imports variables world trade identity