Export Demand Elasticities Research Articles

An Empirical Analysis of Sectoral Export Demand Elasticities and Trade Policies: The Case of India

An Empirical Analysis of Sectoral Export Demand Elasticities and Trade Policies: The Case of India

Rethinking the balance-of-payments-constrained approach, in the light of the recent commodity boom

We develop a balance-of-payments-constrained growth (BPCG) model to explain the specific conditions of small commodity-dependent countries. Based on Thirlwall’s model and subsequent contributions, we elaborate a new model that assumes exogenous export prices, infinite price elasticity of export demand, and supply of commodities that react to prices with positive, but not infinite, elasticity. We contribute to explaining the central role of export prices and the relevance of price competitiveness in the growth dynamics. It is shown that a real devaluation and an improvement in terms of trade (TT) in a context of increasing international prices increase the equilibrium growth rate. However, export prices are more relevant than import prices in determining the growth of these countries, challenging the traditional interpretation of TT. Moreover, our model enriches the extensive literature which has corroborated that a development strategy based exclusively on increasing production capacity in commodity sectors is doomed to fail.

ELASTISITAS EKSPOR NIKEL TERHADAP IPM, DISTRIBUSI PENDAPATAN, DAN TINGKAT KEMISKINAN DI KABUPATEN LUWU TIMUR

The area of ??East Luwu Regency is an area with great potential in terms of natural resources and is where a local and multi-national company operates in the mining sector. The linkage of the mining sector must be improved in order to be able to attract upstream sectors (sectors that have backward linkages). The stronger the relationship between the mining sector and other main sectors such as building/construction, the greater its influence on the development of the East Luwu Regency. The purpose of this study was to analyze the elasticity of nickel exports to HDI, income distribution, and poverty levels. The type of data used is qualitative and quantitative and the source of data is secondary data using time series data for 11 years. Methods of data collection by using the method of observation and non-participant. The analytical technique used in this research is descriptive analysis and distribution lag model. The results of this study are (1) the elasticity of demand for nickel exports to the health index and education index in East Luwu district is inelastic (2) the elasticity of demand for nickel exports to per capita GRDP and the Gini Ratio in East Luwu district is inelastic (3) the elasticity of demand for nickel exports to Severity Index, Depth Index and Poverty Percentage in East Luwu Regency are Inelastic.

Dual-Model Approach to Measuring Convergence Sustainability in the Visegrad Group

Economic convergence has become a European research topic of interest during recent decades, particularly since new member countries joined the EU in 2004. Measuring cross-country convergence focuses on real convergence, taking per capita income as a measure of living standards based on the convergence criteria defined by Sala-i-Martin (1996). The objective of this paper is to bring together supply-side (real convergence) and demand-side (BoP-constrained approach) concepts of economic growth aimed at identification of convergence sources in the emerging economies of the Visegrad Group. The sustainability of convergence in this study utilizes the BoP-constrained growth theory developed by A. Thirlwall (1979). Our results show that all the countries in the Visegrad Group exhibit relatively instant convergence, which could continue considering the intensity and direction of structural changes that affect the export demand elasticities and labour productivity.

Uticaj deviznog kursa na trgovinski bilans Srbije

Subject of this research is contained in its title. We examined the connection and the influence of the foreign exchange rate on the foreign trade balance of Serbia as an independent state in this century, that is, in the period 2007-2017. The aim was to determine whether the theoretical paradigm applies in concrete terms, and that the decline in the value of the domestic currency leads to an improvement in the balance of payments, given the role of price elasticities of import and export demand as well as the level of domestic consumption. The SPSS software package was used for statistical data processing. The observed variables: foreign exchange foreign trade deficit, the exchange rate, the effective nominal exchange rate and the effective real exchange rate are from the point of view of the Scale type. The data were taken from official sources, primarily from the National Bank of Serbia and the Ministry of Finance of Serbia. The obtained results unequivocally confirm that in specific conditions depreciation of the dinar is favorable to the reduction of the deficit of the foreign trade balance. The basic value of this result is that such a policy should continue if the goal is to improve the liquidity of Serbia in international payments. We conclude that the policy of the exchange rate of the dinar in the observed period was properly conducted, and that within the framework of other measures of economic policy, primarily monetary and fiscal, in that sense, gave satisfactory results. In the paper itself, we first defined the basic concepts related to the types and exchange rate regimes. We have added additional conditions for the effectiveness of this policy in order to improve the balance of external trade. By testing the hypotesess we verified the validity of the initial hypotheses of the research. We concluded that the economic policy in this domain in the mentioned period was conducted with due diligence.

An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt

The Balance of Payment constrained growth model was first introduced by Thirlwall in 1979, see [1-2]. According to him a country’s growth rate cannot surpass the rate consistent with its balance of payment equilibrium unless it can finance its endlessly growing current account deficit, which is deemed impossible. In addition, this country’s actual growth rate should be equal to its potential growth rate calculated based on its income elasticity of demand for exports and imports in the long run. Based on these assumptions, this paper examines the Thirlwall Balance of Payment (BOP) constraint growth model in the case of Egypt for the period of 1980 to 2016 using the bounds testing Auto Regressive Distributed Lag (ARDL) model. The model suggests the validity of Thirlwall’s assumption of a long run relation between imports, gross domestic product (GDP) and relative prices having a negligible effect. The actual growth rate was found to be equal to the calculated potential growth rate given the BOP constraint assumption. The empirical results support the historical development of the Egyptian BOP analysis which shows how the external balance was and remains a major factor affecting Egypt’s growth rate. Policy decisions aiming to achieve the calculated potential growth in Egypt should focus on sustaining a balanced current account, through promoting exports and external financial flows.

Is Indonesia's growth rate balance-of-payments-constrained? A time-varying estimation approach

This paper analyses the performance of Indonesia's economy since the early 1980s using Thirlwall's balance-of-payments-constrained (BoPC) growth model, estimated in state-space form to take account of the varying nature of the income elasticities of demand for exports and imports. Results indicate that after peaking in the mid 1980s at above 10 percent, Indonesia's BoPC growth rate has declined significantly, to about 3 percent in recent years. This is the result of changes in the three components of this growth rate: the income elasticities of demand for exports and imports, and the growth rate of world income, all three significantly lower. Especially worrisome for Indonesia's future is the decline in the income elasticity of demand for exports, a variable that summarizes the non-price competitiveness of its exports. This is the consequence of the lack of progress in upgrading the export basket and increasing its sophistication, with natural resources and low value-added manufacturing still dominating the country's exports. Focusing on the two income elasticities, the analysis shows that their determinants are variables that proxy the economy's structural changes (for example, the manufacturing employment share) and within-sector productivity growth (for example, complexity of the economy, gross fixed capital formation as a share of GDP).

The Balance of Payments and Russian Economic Growth

Based on a demand-side approach, Thirlwall’s law claims that, in the long-run, economic growth is constrained by the balance of payments. Income elasticity of demand for exports should be greater than income elasticity of demand for imports in order to grow faster than the limit imposed by export demand. According­ly, accurate estimations of income elasticities are necessary to identify these bounds. This research estimates export and import functions using bilateral trade data between Russia and 53 of its major partners. Then, we empirically test the validity of Thirlwall’s law over the years 1996-2016, generalizing Thirlwall’s model in a bilateral panel framework. In addition, export and import functions are estimated taking into account export and import composition, controlling for key sectoral effects on aggregate elasticities. Using dynamic panel data models, the findings suggest that, on average, the Russian economy has been growing faster than what Thirlwall’s law predicts. The sectoral composition of the Russian external sector has eased the external constraint to growth. Russian exports still significantly consist of oil and gas, price inelastic goods, with positive effects on trade balance over the period of study. However, in a transition toward green energies, the allocation and investment of exports revenues is a key factor to address future scenarios where carbon-based resources lose relevance.

Export Demand Elasticity Estimation for U.S. Cotton

U.S. cotton exports have been characterized by large fluctuations in the last two decades. However, the latest available elasticity estimates of U.S. cotton exports are from 1982. New and more precise estimates of export demand elasticities for U.S. cotton are necessary to forecast future U.S. cotton exports and accurately analyze potential political policy and market changes. This study provides updated estimates of the elasticity of foreign demand for U.S. cotton in selected major cotton importing countries using an Armington framework for the years 1978 to 2017. Additionally, this study examines the evolution of the export demand elasticities over time in a dynamic framework of time-varying parameters (TVP) based on the Kalman filter methodology. Our results indicate that short-run price elasticities of foreign demand for U.S. cotton are price inelastic for major cotton importing countries, except for Pakistan. Countries with lower export demand elasticities are associated with relatively large U.S. cotton market shares for these countries. The import demand elasticity for U.S. cotton in recent years is becoming less elastic, implying that cotton import demand in major importing countries has become less price sensitive than it was historically, and the U.S. has competitive advantages in these major cotton importing countries over other suppliers.

The Study of Effective Factors on Iran's Pharmaceutical Export Supply and Demand.

The importance of drug as a valuable export product in the global economy becomes clearer every day. Understanding the problems of exports and factors affecting it, can be an important step to keep Iran’s position in the world markets and further export development of this product. In this study, Iranian pharmaceutical exports’ supply and demand functions were calculated using co-integration and error correction techniques through time series quarterly data of 2000-2014 in order to identify the factors affecting pharmaceutical exports (short run and long run relationships among the variables) and price and income elasticities. The long run price elasticity of demand of -2.28 indicates that an increase in Iran’s export price relative to competitor′s export price will have a negative impact on pharmaceutical export volume. Also, the long run income elasticity of foreign demand for pharmaceutical exports of Iran is 1.11. That is an increase in income of foreign countries will have a positive impact on Iran’s pharmaceutical export. On the other hand, the long run price elasticity of export supply is 1.09, indicating that the supply of pharmaceutical export is sensitive to the relative price changes. In other words, an increase in export price relative to domestic price as well as an expansion of the pharmaceutical production capacity will increase its export supply. Being aware of the factors affecting the pharmaceutical exports can prepare the ground to develop the pharmaceutical industry and balance the supply and demand in the long run. Therefore, the results of this study can help Iran′s policymakers and managers to choose a clearer path for the pharmaceutical trade policies.

Is the Balance of Payments Constrained Growth Rate Time-Varying? Exchange Rate Over Valuation, Policy-Induced Recessions, Deindustrialization, and Long Run Growth

A long-held view among macroeconomists in the UK and US is that sustained currency over valuation – often the result of financial-sector dominance – weakens domestic macroeconomic performance and results in premature deindustrialization. Similar concerns have been expressed about persistent, policy-induced recessions. According to balance-of payments-constrained growth (BPCG) theory, meanwhile, the BPCG rate in a multi-sector economy varies directly with the share of manufacturing in total output. This chapter develops a simple model that combines these observations to show how a temporary but persistent shock to the nominal exchange rate and/or domestic demand can both affect the actual rate of growth in the short run (by moving it away from the long-run equilibrium BPCG rate), and alter the BPCG rate itself (by lowering the income elasticity of demand for exports as a result of induced premature deindustrialization). The result is a time-varying balance-of payments constrained growth (TV-BPCG) rate. Because actual growth and the TV-BPCG rate vary directly, the latter is also characterized as quasi path dependent.

Demand for Malaysia's Exports: Evidence from the Electronics Industry

This study estimates the determinants of foreign demand for Malaysia's top five electronics exports by SITC (Standard International Trade Classification) product groups from 1990 to 2001. Cointegration results indicate a unique long-run relationship between export demand for electronic products and relative prices and foreign income. Both the estimated long-run income and price elasticities of export demand are greater than 1, conforming to a pattern found in most fast-growing economies and implying price is an important factor in explaining export growth with the exception of semiconductor exports. The present study has important policy implications to the competitiveness of electronics exports that can lead Malaysia's transition towards high-technology industrialization.

National Innovation System and external constraint on growth

ABSTRACT Segundo a literatura sobre modelos de crescimento com restrição externa, as diferenças nas elasticidades-renda da demanda de importações e de exportações entre os países levam a diferentes graus de restrição externa ao crescimento dos mesmos. Contudo, não há nesta literatura uma explicação que utiliza o conceito Evolucionário de Sistema Nacional de Inovações (SI) para mostrar o motivo para as diferenças nas elasticidades-renda dos países. Ademais, não há um consenso sobre a exogeneidade destas elasticidades. Alguns autores enfatizam que a elasticidade-renda de exportações é maior nos setores com maior intensidade tecnológica. Porém, estes autores não explicam os motivos para isto ocorrer. Neste artigo visa-se mostrar teoricamente a relação de causalidade entre o SI de uma economia, suas elasticidades-renda e seu desempenho em transações correntes. Objetiva--se, também, mostrar o papel do SI na determinação da exogeneidade/endogeneidade das elasticidades. A evidência empírica apresentada neste estudo não rejeita seus argumentos.

Exchange Rate, Income Distribution and Technical Change in a Balance-of-Payments Constrained Growth Model

ABSTRACTThis article develops a formal model that accounts for the net effect of an exchange rate devaluation on the long-term balance-of-payments constrained growth rate. Such a model investigates how a currency devaluation impacts on the home country non-price competitiveness via changes in income distribution and the rate of technological innovation. The model is built upon two plausible hypotheses. First, it is assumed that the rate of technological innovation is directly related to the income elasticity of demand for exports and inversely related to the income elasticity of demand for imports. Second, it is assumed that a redistribution of income between labor and capital has an ambiguous direct impact on the income elasticities ratio. The model shows that the net impact of a currency devaluation on growth can go either way depending on the institutional framework of the economy.

Income and Price Elasticities of China's Exports

AbstractThe appearance of new product varieties and improvements in the quality of goods have both played key roles in the rapid growth of China's exports. However, these two important elements have not been formally integrated into the demand equations for China's exports. As we demonstrate in this paper, income elasticity will be underestimated if new varieties of goods and quality improvements are omitted in price index and quantity index calculations, which are necessary for estimating the export demand function. Moreover, the faster new product varieties enter export markets, the greater the underestimation will be. In this paper, we develop an export demand equation that takes into account new product varieties and improvements in quality, and then calculate the demand function for China's exports using the data from 1992 to 2006. According to our estimation, the short‐term income elasticity of demand for China's exports is approximately 2.34, and the short‐term price elasticity is approximately –0.65. Our estimation predicts an increase in China's export value in the case of an RMB appreciation or export rebate rates reduction in the short term, due to the low price elasticity of China's exports, whose absolute value is less than 1. Our findings are novel and could have significant policy implications.

English

  India has been witnessing a rapid growth in exports and gross domestic product (GDP). The paper intends to estimate India’s export demand function using bound test approach to cointegration developed by Pesaran et al. (2001) and examines the causal relationship among the variables applying vector error correction model (VECM) model of Granger causality. test using annual time series data for the period 1980 to 2010. The result shows that there is long run equilibrium relationship between demand for export, world income and relative price of export and trade liberalisation. The long run price and income elasticity have been found to be more than the short run price and income elasticity. The income elasticity is more than unity, both in the short run and in the long run signifying the importance of exports as an engine of economic growth. The price elasticity of demand for India’s export has been found to be less than unity in the short run and close to unity in the long run. The Granger causality test reveals that relative price, world income and trade liberalization Granger cause the demand for export, both in the short run as well as in the long run.   Key words: Export demand, price and income elasticity, bound test, Granger causality.

Export Demand Elasticity Estimation for Major U.S. Crops

Elevated prices for major U.S. commodities have renewed interest in the price sensitivity of foreign demand facing the United States. Although the elasticity of foreign demand plays an important role in discussions of U.S. farm policy, it is also a parameter that is much debated with the majority of studies in this area published over 20 years ago. We provide new estimates of the elasticity of export demand for U.S. corn, soybeans, and wheat using updated data and empirical techniques. Our estimates are useful for practical policy analysis as well as for researchers seeking to parameterize large-scale simulation models.

Export demand elasticities and productivity as determinants of growth: estimates for Mauritius

In this article, we combine the export led and import led growth hypotheses in a growth model in which the importation of foreign capital goods and the demand elasticities of own export products explain the growth opportunities and the technical progress of developing countries. This model, based on imported capital goods, uses Mauritius’ data on capital investment, employment, export partners’ growth and terms of trade to estimate price and income elasticities of export demand, total factor productivity growth and economies of scale. These elasticities are then used to assess how the growth in export partners’ income is converted into domestic growth. The implications of the presence of low or high export demand elasticities are discussed by relating them to various strands of trade and growth literature. Based on the results of this estimation, we also calculate steady state growth rates, engine and handmaiden effects of growth as well as the dynamic steady state gains from trade for this latecomer export economy. The implications of steady state results are also discussed in the light of the Mauritian employment and growth perspectives.

Global Economic Crisis: Impact and Restructuring of the Services Sector in India

The Indian economy has shown considerable resilience to the global economic crisis by maintaining one of the highest growth rates in the world. The services sector accounted for around 88% of the growth rate in real gross domestic product in 2008–09. To demystify the relatively resilient growth of the services sector in India, this study examines both the demand-side and the supply-side factors that have contributed to its growth. To assess the role of external demand, income elasticity of export demand for the aggregated services and some of the disaggregated services of India were estimated.

Optimal Tariffs: Should Australia Cut Automotive Tariffs Unilaterally?*

We derive formulas for the optimal tariff rate in four theoretical models. We start with a model in which industries are competitive and then successively allow for: monopoly pricing by export industries, revenue‐replacement costs and cold‐shower effects. The theoretical formulas accurately explain results from MONASH, a detailed computable general equilibrium model. A critical parameter in determining the optimal tariff is the export‐demand elasticity. Modellers are often reluctant to adopt empirically justifiable values for export‐demand elasticities because such values generate embarrassingly large optimal tariff rates. A way out of this dilemma is the adoption of a non‐linear cold‐shower specification.