Import Demand Elasticities Research Articles

Estimating Import Supply and Demand Elasticities: Analysis and Implications

Feenstra (1994) developed, and Broda and Weinstein (2006) refined, a structural estimator to estimate import demand and supply elasticities. Working through the first principles of the methodology from Leamer (1981), this paper analyzes and improves the technique to provide a unified estimator of import supply and demand elasticities. The proposed LIML routine corrects small sample biases and constrained search inefficiencies. Standard estimates are shown to overestimate the median elasticity of substitution by over 35%. Applied to U.S. import data from 1993-2007, the biases of the standard estimates translate into an understatement of consumer gains from product variety by a factor of 6. Lastly, I investigate the implications of violations to the underlying assumptions of the model.

Organizing the Global Value Chain

We develop a property-rights model of the firm in which production entails a continuum of uniquely sequenced stages. In each stage, a final-good producer contracts with a distinct supplier for the procurement of a customized stage-specific component. Our model yields a sharp characterization for the optimal allocation of ownership rights along the value chain. We show that the incentive to integrate suppliers varies systematically with the relative position (upstream versus downstream) at which the supplier enters the production line. Furthermore, the nature of the relationship between integration and downstreamness depends crucially on the elasticity of demand faced by the final-good producer. Our model readily accommodates various sources of asymmetry across final-good producers and across suppliers within a production line, and we show how it can be taken to the data with international trade statistics. Combining data from the U.S. Census Bureau's Related Party Trade database and estimates of U.S. import demand elasticities from Broda and Weinstein (2006), we find empirical evidence broadly supportive of our key predictions. In the process, we develop two novel measures of the average position of an industry in the value chain, which we construct using U.S. Input-Output Tables.

Distribution Capital and the Short- and Long-Run Import Demand Elasticity

International business-cycle models assume that home and foreign goods are poor substitutes. International trade models assume they are close substitutes. This paper constructs a model where this discrepancy is due to frictions in distribution. Imports need to be combined with a local non-traded input, distribution capital, which is slow to adjust. As a result, imported and domestic goods appear as poor substitutes in the short run. In the long run this non-traded input can be reallocated, and quantities can shift following a change in relative prices. Thus the observed substitutability between home and foreign goods gets larger as time passes.

Distribution Capital and the Short- and Long-Run Import Demand Elasticity

International business-cycle models assume that home and foreign goods are poor substitutes. International trade models assume they are close substitutes. This paper constructs a model where this discrepancy is due to frictions in distribution. Imports need to be combined with a local non-traded input, distribution capital, which is slow to adjust. As a result, imported and domestic goods appear as poor substitutes in the short run. In the long run this non-traded input can be reallocated, and quantities can shift following a change in relative prices. Thus the observed substitutability between home and foreign goods gets larger as time passes.

Estimating the import demand function for China

This paper estimates the import demand elasticity for China using three fully efficient cointegrating regressions and the autoregressive distributed lag (ARDL) method. This paper is the first to accommodate the perception of global risk in an investigation of the information transmission mechanism between the relationship import demand and its determinants in China. The empirical results show that real imports are cointegrated with domestic economic activity, real effective exchange rate, and the perception of global risk. Domestic income is found to have a significantly positive effect on imports. Contrary to theory, the real effective exchange rate carries negative coefficients, which suggests that a decrease in external competitiveness (appreciation) will decrease the level of imports in the case of China. One of the reasons for this may be the tied anti-dumping duty on some import items. Since the perception of global risk adversely affects China's aggregated imports, policy-makers should consider the degree to which the perception of global risk affects the implementation of trade policies.

Immiserizing Growth and the Metzler Paradox in the Ricardian Model

Conditions for the occurrence of immiserizing growth and the Metzler paradox are analysed in the Ricardian model when consumers in the foreign country have Leontief preferences while consumers in the home country have Cobb-Douglas preferences. By using specific functional forms, the conditions for the occurrence of the two paradoxes are defined in terms of the exogenous parameters of the model rather than endogenous variables such as the foreign import demand elasticity in the conditions of Bhagwati (1958) and Metzler (1949a, b). It is shown that the simultaneous occurrence of both paradoxical results is possible for some parameter values.

Self-Enforcing Trade Agreements: Evidence from Time-Varying Trade Policy

The Bagwell and Staiger (1990) theory of cooperative trade agreements predicts new tariffs (i) increase with imports, (ii) increase with the inverse of the sum of the import demand and export supply elasticities, and (iii) decrease with the variance of imports. The authors find US import policy during 1997-2006 to be consistent with this theory. A one standard deviation increase in import growth, the inverse of the sum of the import demand and export supply elasticity, and the standard deviation of import growth changes the probability that the US imposes an antidumping tariff by 35 percent, by 88 percent, and by -76 percent, respectively.

The Remarkable Durability of Thirlwall’s Law

This paper contemplates the robustness of Thirlwall’s Law, a parsimonious expression that relates long run equilibrium growth in any one region to the product of world income growth and the ratio of the income elasticities of demand for exports and imports. Various extensions of the balance-of-payments-constrained growth model from which Thirlwall’s Law is derived are contemplated. In each case, Thirlwall’s Law is shown to reassert itself as a good approximation of the equilibrium growth rate. It is hypothesized that this robustness helps explain the widespread empirical success of Thirlwall’s Law.

Do EU Rules of Origin Restrict Western Balkans’ Trade Performance?

This paper aims to examine quantitative and qualitative aspects of trade flows of the Western Balkan Countries (WBCs) and to assess appropriateness of EU trade policy arrangements with respect to the system of cumulation of rules of origin towards the WBCs in the past decade. Due to bilateral cumulation of origin rules under SAAs and autonomous trade preferences prior to march 2009 exporters in WBCs have been constrained when using inputs from other countries from the region, as only inputs sourced from EU have been accepted as local content granting preferential status in the EU markets. The estimations of income elasticities of import demand confirm that growth of intra-regional WBCs’ imports of intermediates was slower than growth of total intra-regional imports in response to GDP growth - most significantly for Macedonia and Albania, while the opposite was the case for WBCs’ imports from EU-15 and from new EU member. Further, the results based on gravity model estimations for Croatia suggest that lack of cumulation of rules of origin do indeed have significantly negative impact on bilateral trade flows, in particular for trade with intermediates and food and beverages. More specifically, where there is no cumulation of rules of origin between Croatia and importing country exports of industrial supplies are estimated to be 24% lower than expected levels in case of the diagonal cumulation.

Measuring the Price Elasticity of Import Demand in the Destination Markets of Italian Export

The aim of this paper is to compare the price elasticity of import demand in the destination markets of Italian exports to the price elasticity in the destination markets of the other main euro-area countries’ exports. To this end, we use the elasticities of substitution across varieties estimated for each destination market (defined as a country-product combination) by Broda, Greenfield and Weinstein (2006). We find that Italy exports to markets which have, on average, a lower price elasticity than the markets where France, Germany and Spain sell their exports. The result is mainly driven by the motor vehicle and other transport equipment sectors. Net of these two industries, the export elasticities of the four countries are basically identical. The sectoral and geographical composition of Italian exports therefore does not seem to expose them to a relatively more elastic demand, contrary to the indications of part of the literature.

A HISTÓRIA DO CRESCIMENTO ECONÔMICO BRASILEIRO E A RESTRIÇÃO EXTERNA

O trabalho estuda os efeitos das políticas econômicas adotadas no período de 1930-2007 sobre o comportamento das elasticidades-renda das demandas por importação e exportação para a economia brasileira, dentro do contexto da teoria do crescimento sob restrição externa. Com base em um modelo em primeiras diferenças estimado por mínimos quadrados ordinários, o estudo identifica os períodos históricos em que houve quebra nos parâmetros das funções de exportação e importação e os relaciona com as políticas seguidas. Os resultados encontrados permitem concluir que ainda que o crescimento de um país seja restrito pela estrutura do seu comércio externo, essa estrutura pode ser modificada por meio de políticas governamentais.

Demand for fiberboard panels in the international market

The objective of this study is to estimate for several importing countries of fiberboard panels the income elasticities and price elasticities of total import demand and also the own-price and cross-price elasticities of demand for fiberboard panels, differentiated by country of origin. Time series data were used referring to the trade flow of the world's largest exporters and importers of fiberboard panels. The demand model being used treats products as imperfect substitutes. It was concluded that in Germany, China and United Kingdom the total import demand for fiberboard panels was more sensitive to variations in price than in income, whereas in other importing countries the reverse happened. The own-price elasticity of demand for fiberboard panels, differentiated by country of origin, was higher than one in almost all markets, except in Germany and United Kingdom. The negative cross-price elasticities suggest that fiberboard panels imported from other exporting countries are complementary products.

Measuring the price elasticity of import demand in the destination markets of italian exports

We compare the price elasticity of import demand in the destination markets of Italian exports to the price elasticity in the destination markets of the other main euro-zone countries' exports. We use the elasticities of substitution across varieties estimated for each destination market by Broda, Greenfield and Weinstein (2006). We find that Italy exports to markets that have, on average, lower price elasticity than the markets to which France, Germany and Spain sell their exports. The result is mainly driven by the motor vehicle and other transport equipment sectors. Net of these two industries, the average export elasticities of the four countries are basically identical. The sectoral and geographical composition of Italian exports therefore does not seem to expose them to a relatively more elastic demand, contrary to the indications found in part of the literature.

THE INFLUENCE Of RMB APPRECIATION ON EXPORTS PRICE OF CHINA

The influence of RMB appreciation on China's trade is mainly through the mechanism of price competition.So this paper researches on the change of exports price caused by RMB appreciation.Firstly,we analyze the path of exchange to exports price,and estimate import demand elasticity for each sector by using;econometric model.Then,we adopt input-output model,to take substitution of imports for domestic products and the pass-through of price among each sector into consideration.Finally,we analyze the influence of exchange appreciation on processed exports price and non-processed exports price by sector,and point out some interesting conclusions.

Trade liberalization and import demand: The Central American experience

We investigate the effect of trade liberalization on the price and income elasticities of demand for imports in five Central American economies. In contrast to recent studies, we find that liberalization has had little impact on import demand's sensitivity to price. However, the income elasticity is found to change significantly in three countries; doubling in two and halving in the third. Despite the similar characteristics and trade policies of the five economies, none of the explanations for structural change in import elasticities suggested in the literature can account for more than a minority of our results.

An Empirical Analysis of the Demand for Imports in three CARICOM Member Countries: An Application of the Bounds Test for Cointegration

This paper provides fresh estimates of income and price elasticities of import demand in Guyana, Jamaica, and Trinidad and Tobago using a bounds test for cointegration. In addition, the paper also provides estimates of the consumption, investment, and exports elasticities of import demand. These latter elasticities were all found to be positive and statistically significant with values ranging from 0.16 to 0.55 in the long-run.

Price and income elasticities of crude oil import demand in South Africa: A cointegration analysis

This paper examines the demand for imported crude oil in South Africa as a function of real income and the price of crude oil over the period 1980–2006. We carried out the Johansen co integration multivariate analysis to determine the long-run income and price elasticities. A unique long-run cointegration relationship exists between crude oil imports and the explanatory variables. The short-run dynamics are estimated by specifying a general error correction model. The estimated long-run price and income elasticities of −0.147 and 0.429 suggest that import demand for crude oil is price and income inelastic. There is also evidence of unidirectional long-run causality running from real GDP to crude oil imports.

From toys to warships: Interdependence and the effects of disaggregated trade on militarized disputes

The United States recently proposed to sell Saudi Arabia advanced weaponry worth 20 billion dollars over the next 10 years. The volume of trade, while significant, is second in the news headline that the United States would provide Saudi Arabia with precision-guided bombs, upgrades to its fighters, and new naval vessels. Trade of strategic commodities, such as armaments, suggests a strong interdependence between countries, which may influence international relations differently than the same volume of toys traded between nations. The author posits the volume and pattern of commodities that countries trade with each other are both relevant to interstate conflict. Commodities are heterogeneous and thus vary in terms of their strategic importance, substitutability, and ease of expropriation. This heterogeneity, along with the volume of trade, influences the opportunity cost of lost trade caused by conflict. This article empirically examines whether the pattern of trade is relevant to conflict for the period 1962–2000. The results from both single and simultaneous equations models indicate that increasing the share of bilateral trade in energy, non-ferrous metals, and electronics increases conflict, whereas for chemicals and arms it reduces conflict. Differences in these strategic commodities’ elasticity of import demand and export supply, along with their ease of expropriation, contribute to the heterogeneous effects.

Explaining Nigeria's import demand behaviour: a bound testing approach

PurposeThe purpose of this paper is to present an empirical analysis of the aggregated import demand behavior for Nigeria using annual data between 1980 and 2006.Design/methodology/approachThe bounds test analysis was used to estimate the long‐run relationship between imports and its determinants.FindingsTest results show that imports, income and relative prices are cointegrated. The estimated long‐run elasticities of import demand with respect to income and relative prices are 2.48 and −0.133, respectively.Originality/valueThese results suggest that the Marshall‐Lerner condition are not satisfied for Nigeria.

Import Demand Elasticity and Exporter Responses to Anti-Dumping Duties

When an anti-dumping (AD) duty is imposed, a foreign exporting firm must decide whether to stay in the market and how to price its product. This paper investigates both of these decisions, but focuses on firm pricing by exploring the pass-through of the AD duty. Our model of exporter behavior shows that the firm’s responses crucially depend on the elasticity of the import demand. The firm finds it easier to increase the price if it faces a low elasticity of demand. The theoretical predictions are supported empirically by relating product-level US import demand elasticities and exporting firms’ reactions to duties inferred from a dataset on US AD investigations from 1980 to 1995.