Export Demand Elasticities Research Articles

Structural Breaks and Exports in the Philippines

This paper estimates the export demand equation for the Philippines using the Gregory and Hansen procedure. We allowed for structural breaks within the Gregory and Hansen framework and obtained a cointegrating relationship between real exports, real income and relative prices. Our preferred model is the level shift where all the coefficients are significant and plausible. The income elasticity of export demand is around unity and the relative price elasticity is around -1.2.

Simultaneous estimation of income and price elasticities of export demand, scale economies and total factor productivity growth for Brazil

This article focuses on a growth model in which (unlike other models) low (high) export demand elasticities and the fact that developing countries are importers of capital goods help explaining the slow (high) growth of these countries in the transition and in the steady state. The question arises whether export demand elasticities are low or high. For answering this question, export demand elasticities for the case of Brazil are obtained by estimation of the model. As a by-product of estimating the model, we obtain estimates for total-factor productivity growth and for scale economies. Based on the results from estimation we calculate steady-state growth rates, engine and handmaiden effects of growth as well as dynamic steady-state gains from trade. The model and the results are discussed in regard to several strands of literature.

Economic Impacts of the U. S. Soybean Aphid Infestation: A Multi-Regional Competitive Dynamic Analysis

We estimated the economic benefits resulting from controlling soybean aphid infestation by using a multi-regional competitive dynamic equilibrium model. Results indicate that the reduction of soybean production resulting from a soybean aphid infestation is largely absorbed by reducing soybean exports, due to the higher price elasticity of export demand compared to domestic demand. Producer benefits resulting from controlling soybean aphids would increase by between $949 million and $1.623 billion in ten years under various scenarios. Results also suggest that it is economically more efficient to control soybean aphids when the rate of intrinsic growth is relatively lower, the supply price elasticity of soybean acreage is relatively more elastic, and insecticide treatment costs per acre are lower. However, if the discovery of the gene Rag-1 (TF04048) leads to new cultivars that withstand the soybean aphid, our estimates will overestimate the actual damages. Even so, our analysis demonstrates that it is critical to control soybean aphids early in their infestation cycle to avoid a rapid increase in damages.

Export taxes in times of trade surpluses

This paper studies the comparative effects between an exchange rate appreciation and the introduction of an export tax as alternative policy responses to address trade surplus concerns in a country with a fixed exchange rate regime facing a downward-sloping world demand curve for its exports. It is found that an exchange rate appreciation would not alter the nature of the long-run equilibrium, and would thus be welfare-neutral. The appreciation would merely supplant foreign reserve accumulation as the mechanism that transits an economy from the short- to long-run equilibria, resulting in a lower long-run stock of foreign reserves. By comparison, an export tax would raise the export price in foreign-currency terms. Provided that the tax revenue is transferred back to consumers in a non-distorting manner, the welfare consequence of the tax would depend largely on the elasticity of the world demand for the country's exports. If the demand is inelastic, both national welfare and the stock of foreign reserves would necessarily rise in the long run as much of the tax burden would be shifted forward to foreign consumers. If the demand is elastic, the change to national welfare would depend on the relative magnitudes of a number of parameters, including most notably the import content of exports.

Exchange Rate Sensitivity of U.S. Trade Flows: Evidence from Industry Data

1. IntroductionIn an effort to boost employment, a country could stimulate its exports and discourage its imports and thereby improve its trade balance. One policy that has received a great deal of attention in the literature is currency devaluation. By making exports cheaper and imports expensive, devaluation is said to improve the trade balance. The only condition required is that the sum of import and export demand price elasticities exceed unity (that condition, known as the Marshall-Lerner condition, is derived under the assumption of perfectly elastic supply of trade). Most previous studies that attempted to assess the Marshall-Lerner condition relied on price elasticities that were obtained by estimating aggregate import and export demand functions. These studies provided mixed conclusions as far as the effectiveness of devaluation or depreciation is concerned. Examples include Houthakker and Magee (1969), Khan (1974), Goldstein and Khan (1976, 1978), Wilson and Takacs (1979), Haynes and Stone (1983a, 1983b), Warner and Krienin (1983), Bahmani-Oskooee (1986, 1998), and Bahmani-Oskooee and Niroomand (1998). The mixed conclusion could be related to aggregation bias. When aggregate trade data are employed in import and export demand functions, significant price elasticity with one trading partner could be more than offset by an insignificant price elasticity with another trading partner, yielding an insignificant price elasticity.Because of aggregation bias, another body of the literature has emerged in recent years that concentrates on using trade data at the bilateral level. Examples in this latter group include Rose and Yellen (1989), Cushman (1987, 1990), Summary (1989), Marquez (1990), Haynes, Hutchison, and Mikesell (1986), Eaton (1994), Bahmani-Oskooee and Brooks (1999), Nadenichek (2000), and Bahmani-Oskooee and Goswami (2004). Except Bahmani-Oskooee and Goswami (2004), all other studies in this second group have estimated bilateral trade elasticities between the United States and her major trading partners and concluded that the real bilateral exchange rate is a significant determinant of bilateral trade balance, at least in some cases. Bahmani-Oskooee and Goswami (2004), who considered the bilateral trade flows between Japan and her nine major trading partners, found that in most cases Japanese exports are not sensitive to the real bilateral exchange rate, but her imports are. These studies as well as those in the first group estimate price elasticities in demand under the assumption that supply is perfectly elastic and then evaluate the Marshall-Lerner condition involving own-price coefficients in demand. Thus, evidence in these studies is limited because it assumes perfectly elastic supply of trade for both exports and imports.Although there is additional room to expand the literature in the second group by considering the experiences of countries other than the United States and Japan, in this paper we would like to open another avenue of research by investigating the impact of real depreciation of the dollar on imports and exports of 66 American industries, a disaggregation by industry rather than by country. Disaggregation by industry will avoid problems associated with petroleum imports, as does disaggregation by country (Rose and Yellen 1989).1 For this purpose, in Section 2 we outline the import and export demand functions for each commodity group along with the estimation method. In Section 3, we present the empirical results. Section 4 provides our summary and conclusion. Data definitions and sources are cited in an appendix.2. The Models and the MethodIn formulating any import and export demand function, it is a common practice to relate the volume of imports and exports to a measure of income and relative prices. The main purpose is to obtain estimates of import and export demand elasticities so that we can better judge the effectiveness of currency devaluation in increasing a country's inpayments and reducing outpayments. …

WHO'S AFRAID OF THE MARSHALL‐LERNER CONDITION?

The Marshall‐Lerner condition—that the sum of the elasticities of import and export demand exceeds unity—has been put forward as a condition that is required for a depreciation to make the trade balance more positive. Based on recently estimated trade equations, the more appropriate condition for Australia is that the sum of the import elasticity of demand and the elasticity of the export price with respect to the exchange rate exceeds unity. I call this the Small Economy Marshall—Lerner (SEML) condition. In recent history, this condition was fulfilled in 1999–2001, when the (unstable) relationship between the terms of trade and the exchange rate broke down.

INCOME AND PRICE ELASTICITIES OF TRADE: Some New Estimates

With introduction of new estimation techniques, old theories receive a renewed attention and on this regard, trade elasticities are no exception. In this paper we employ a new cointegration technique, i.e., ARDL approach to cointegration that does not require pre-testing for unit root and estimate income and price elasticities of import and export demand for 28 countries. The results indicate that price elasticities in most instances are high enough to conclude that real depreciation could improve the trade balance.

Exchange rate sensitivity of the Canadian bilateral inpayments and outpayments

The traditional way of assessing the impact of currency depreciation on the trade balance has been to estimate the import and export demand elasticities using aggregate trade data and check the Marshall–Lerner condition. To reduce the aggregation bias, the trend now is to estimate these elasticities on a bilateral basis. However, due to lack of data on import and export prices at bilateral level, the new models relate import or export values directly to the exchange rate. In this paper, we estimate such models between Canada and her 20 largest trading partners using recent advances in time-series modeling. The results reveal that in many cases while export values (inpayments) are not sensitive to the exchange rate, import values (outpayments) are.

Türkiye nin İhracat Talebi Fonksiyonunun Sınır Testi Yöntemi ile Eşbütünleşme Analizi

This study includes an econometric analysis of the export demand behaviour by using Turkey's annual data that cover 32 years periods from 1970 to 2002. In the study, the 'bounds test' method of Pesaran et al (2001) was used to investigate the long run relationship between export demand, and its determinants, namely income and relative prices. As a result of this empirical analysis, it was demonstrated that export volume, income and relative prices were cointegrated. The estimated long term elasticities of export demand with respect to income and relative prices are 0.21 and -1.684, respectively. The sum of the elasticities of import and export demand exceeds one (-1.01) i.e., Marshall-Lerner condition holds. These results show that monetary, fiscal and exchange rate policies may be used as substitutive policies to correct unfavourable trade balance.

Türkiye nin İthalat Talebi Fonksiyonunun Sınır Testi Yaklaşımı ile Eşbütünleşme Analizi : 1970 - 2002

This study presents a statistical analysis of the aggregated import demand behaviour for Turkey. In this study, a small sample of annual data from 1970 to 2002 were used to investigate the long run relationship between import demand, and its determinants, namely income and relative prices, by the 'bounds test' method of Pesaran et al (2001). By the results of this test, it was demonstrated that import volume, income and relative prices were cointegrated. The estimated long term elasticities of import demand with respect to income and relative prices were found as 0.37 and 0.67, respectively. As an absolute value, the sum of elasticities of import and export demand (-1.01) is greater than one. Consequently, we deduce that monetary, fiscal and exchange rate policies may be used as substitutive policies to arrange unfavourable trade balance. But they are not sufficient.

The optimal tax on antebellum US cotton exports

The US produced about 80% of the world’s cotton in the decades prior to the Civil War. How much monopoly power did the US possess in the world cotton market and what would have been the effect of an optimal export tax? This paper estimates the elasticity of foreign demand for US cotton exports and uses the elasticity in a simple partial equilibrium model to calculate the optimal export tax and its effect on prices, trade, and welfare. The results indicate that the export demand elasticity for US cotton was about −1.7 and that the optimal export tax of about 50% would have raised US welfare by about $10 million, about 0.3% of US GDP or about 1% of the South’s GDP.

Macroeconomics of International Price Discrimination

This paper builds a baseline two-country model of real and monetary transmission under optimal international price discrimination. Distributing traded goods to consumers requires nontradables; because of distributive trade, the price elasticity of export demand depends on the exchange rate. Profit-maximizing monopolistic firms drive a wedge between wholesale and retail prices across countries. This entails possibly large deviations from the law of one price and incomplete pass-through on import prices. Yet, consistent with expenditure-switching effects, a nominal depreciation generally worsens the terms of trade. Moreover, the exchange rate and the terms of trade can be more volatile than fundamentals. For plausible ranges of the distribution margin, there can be multiple steady states, whereas large differences in nominal and real exchange rates across equilibria translate into small differences in consumption, employment and the price level. Finally, we show that with competitive goods markets international policy cooperation is redundant even under financial autarky.

Macroeconomics of International Price Discrimination

This paper builds a baseline two-country model of real and monetary transmission under optimal international proce discrimination. Distributing traded goods to consumers reuires nontradables; because of distributive trade, the proce elasticity of export demand depends on the exchange rate. Profit-maximizing monopolistic firms drive a wedge between wholesale and retial proces across countries. This entails possibly large deviations from the law of one price and incomplete pass-through on import prices. Yet, consistent with expenditure-switching effects, a nominal repreciation generally worsens the terms of trade. Moreover, the exchange rate and the terms of trade can be more volatile than fundamentals. For plausible ranges of the distribution margin, there can be multiple steady states, whereas large differences in nominal and real exhange rates across equilibria translate into small differences in consumption, employment and the price level. Finally, we show that with competitive goods markets international policy cooperation is redundant even under financial autarky. JEL Classification: F3, F4

Real exchange rate effects on the balance of trade: cointegration and the Marshall–Lerner condition

AbstractA typical finding in the empirical literature is that import and export demand elasticities are rather low, and that the Marshall–Lerner (ML) condition does not hold. However, despite the evidence against the ML condition, the consensus is that real devaluations do improve the balance of trade, though after a lag because of J‐curve effects. The aim of this paper is to try and measure the effects of the real exchange rate on the balance of payments using structural cointegrating vector autoregressive distributed lag (VARDL) models for domestic and foreign output, the balance of trade and the real exchange rate. Small systems are estimated for eight OECD countries to investigate long‐run cointegration. Generalized impulse response functions are calculated to investigate the response to shocks. These show evidence of J‐effects. The VARDL estimates suggest a single cointegrating vector and that output and the real exchange rate can be treated as weakly exogenous for the parameters of the balance of payment equation. This allows estimation using a single‐equation ARDL. Although there is considerable heterogeneity, overall the results suggest that the ML condition is satisfied in the long run. Copyright © 2001 John Wiley & Sons, Ltd.

Measuring the effectiveness of non-price export promotion using a supply-side approach

In this paper we assess the effectiveness of the Market Promotion Program (MPP) in increasing U.S. exports and benefitting U.S. agricultural producers and food processors. Export shipments are linked to producer welfare using Kohli's (1978) profit maximization (GNP function) approach to modeling international trade. Using estimated profit functions in conjunction with a synthetic export demand function for processed agricultural products, we compute changes in farm and food processing sector profits that result from alternative own-price and advertising elasticities of export demand with and without the MPP subsidy. This approach allows us to investigate aggregate welfare effects of nonprice promotion without requiring the difficult task of estimating the export demand effects of market promotion activities for numerous commodities and importing countries.

A NOTE ON TRADE ELASTICITIES IN ASIAN COUNTRIES

This article estimates the price and income elasticities of import and export demands for India, Japan, the Philippines, Sri Lanka, and Thailand using annual time series data. Both price and income elasticities of import demand are found to be in the inelastic range for all five countries. Export demand is found to be price elastic for Japan, the Philippines, and Thailand and price inelastic for India and Sri Lanka. Export demand is found to be income elastic for Japan but not for the other four countries. The Marshall-Lerner-Robinson condition states that a devaluation improves the balance of trade position only if the sum of the absolute values of price elasticity of import demand and the price elasticity of export demand is greater than one. This condition is met for India, Japan, the Philippines, and Thailand but not for Sri Lanka.

DOES HYSTERESIS OCCUR IN TRADE? SOME EVIDENCE FOR BILATERAL EXPORT FLOWS AT A DISAGGREGATED LEVEL

This article shows that hysteresis effects can be specific to certain commodities and/or to trade with particular countries. We perform two tests to investigate two different implications of the hysteresis hypothesis. The first implication is that the relative price elasticity of demand for exports rises when a market becomes more competitive. The second implication is that relative export prices are insensitive to changes in the exporter's relative exchange rate. We find that hysteresis is not an insignificant phenomenon for some specific goods. Out of 14 products we can accept Baldwin's hysteresis hypothesis for three: manufacture of drugs and medicines, manufacture of office computing and accounting machinery, and manufacture of radio, television, and communication equipment. These are sectors with higher than average sunk costs in terms of advertising expenditure.

Time Series Analysis of Export Demand Equations: A Cross-Country Analysis

The paper estimates export demand elasticities for a large number of developing and industrial countries, using time-series techniques that account for the nonstationarity in the data. The average long-run price and income elasticities are found to be approximately -1 and 1.5, respectively. Thus, exports do react to both the trade partners' income and to relative prices. Africa faces the lowest income elasticities for its exports, while Asia has both the highest income and price elasticities. The price and income elasticity estimates have good statistical properties.

Cointegration Approach to Estimate the Long-Run Trade Elasticities in LDCs

The Marshall-Lerner condition postulates that if the sum of import and export demand elasticities add up to more than one, devaluation should improve the trade balance in the long-run. This paper is the first to employ a long-run method, i.e., cointegration technique to estimate trade elasticities in less develop countries. In most cases the results reveal that indeed trade elasticities are large enough to support devaluation as a successful policy to improve the trade balance. [F10, F31]

Determinants of the demand for Thailand's exports of tourism

We investigate the effects of world income and the relative price of tourism in Thailand on Thailand's exports of tourism. In contrast to previous studies, we test for stationarity and cointegration of the variables of the model. We find that the variables are not stationary in level form, but they are cointegrated. Our estimate of the relative price elasticity of demand for Thailand's exports of tourism is - 1.199 in the short run and - 0.891 in the long run. The corresponding estimates for the income elasticity of demand are 1.926 and 2.342 respectively. However, only the short-run price elasticity of demand is significantly different from zero.