Income Elasticity Of Demand For Imports Research Articles

Income Elasticity of Imports and External Constraint in Periods of Commodity Export Boom: Evidence for the Brazilian Economy

The work proposal includes verifying: i) whether the increase in the income elasticity of demand for imports (IEDI) in Brazil (between 1997q1 and 2018q4 ) can be explained by the increase in exports; ii) whether this could have occurred as a result of the increase in commodity exports; iii) the mechanisms by which the increase in IEDI occurred, whether through final consumption goods or through intermediate goods; iv) whether this should be considered in models that explain economic growth through the performance of the balance of payments (Thirlwall's Law). Then, to test this, we propose estimates a modified version of the multi-sectoral Thirlwall Law (MSTL). The vector autoregressive (VAR) methodology and the vector error correction model (VECM) were used in the estimations. The results showed that the growth of commodity exports has a significant impact on the increase in the IEDI in the analyzed period, which limits the possibilities for the Brazilian economy to reach a balanced growth trajectory with a higher growth rate in the long term.

Estimation of Import Demand Elasticities, In the BPCG Model and the Import Demand Function (The Case Study of Iran)

In this study, the demand elasticities of import are estimated, with two approaches, the balance of payments constrained growth (BPCG) or Thirlwall model and the import demand function, by using data in Iran during the period 1980 to 2018 and ARDL method.
 According to BPCG model, economic growth is equal to the ratio of export growth to income elasticity of import demand, so it is related to the growth of exports and income elasticity of import demand in the long run.
 Based on this model, if national income increase and the income elasticity of import demand is high, the imports increase, the effect of export growth and consequently economic growth decreases.
 The results showed that in the long run, the income elasticity of import demand in BPCG model isequal to 0.04 and based on the import demand function is 0.34 and the relative price elasticity of import demand (the ratio of import price to domestic price) is -0.52. Therefore, imports in Iran have been more affected by price than income effects.
 Due to the smaller amount of income elasticity of import demand in both models and based on the BPCG model, the greater income elasticity of import demand, reduces the effect of export growth coefficient, it can be concluded that the magnitude of this elasticity has not been a constraint to Iran's economic growth. Given the significant impact of prices on imports, economic planners should focus on increasing the competitiveness of domestic products.

Import Demand Function in India Under the Liberalised Trade Regime

The trade liberalisation policy was initiated in India in the 1980s but executed effectively since the early 1990s. Since then India’s foreign trade embarks on a new road with a rapid expansion of export and import. Over the period, import exceed export. Identifying factors influencing such a significant elevation of import is a relevant issue of research. This study appraises import demand function in India for the liberalised trade regime particularly, for an extended period 1980–2018, and for the post-reform period, 1992–2018. The study identifies domestic income in aggregated and disaggregated level with exchange rate, trade openness and population growth as significant determinants of import demand. The income has a positive impact on import demand, where income elasticity of import demand differs significantly across the aggregate income and its components—consumption, investment and export expenditure. The exchange rate has a negative impact, implies a depreciation of Indian currency decrease import demand. The trade openness causes a rise in import demand both in the long run and in the short run. Population growth also raises import demand. The econometric diagnostics corroborate the fact that the estimated import demand functions are stable and robust. JEL Codes: F10, F14, C22

Estimating supply and demand elasticities of dissolving pulp, lignocellulose-based chemical derivatives and textile fibres in an emerging forest-based bioeconomy

In a growing bioeconomy, traditional forest products markets change and diversify. Fossil-based inputs in the chemical, textile, apparel and downstream industries can be replaced by lignocellulose-based products such as dissolving pulp, cellulose-based chemical derivatives and textile fibres. When looking ahead, these previous niche products are likely to gain in economic importance. So far, little attention has been paid to the characteristics of macroeconomic relations of emerging lignocellulose-based materials on macroeconomic level. Key economic parameters for such materials are not available neither at regional nor at global level. This work aims to contribute to a better understanding of the market behavior of emerging forest products that are not yet covered by forest products market analysis. Therefore, this paper investigates how lignocellulose-based products respond to changes of main economic drivers and compute global market elasticities for dissolving pulp, cellulose-based chemical derivatives and textile fibres. To conduct our evaluation, we first test historical input data for non-constancy in time series due to structural changes using change-point estimator (MOSUM test). We subsequently carry out a global econometric analysis of demand and supply elasticities with income (GDP) and real import and export prices as explanatory variables. By doing so, we deliver key information for the adaptation of forest-product market analysis and modelling to an upcoming bioeconomy. The results show several structural changes especially in price data between 1992 and 2015, thus supporting the use of time series cuts to divide the time line from 1992 to 2015 into three different sub-periods. Elasticities are subsequently estimated for each of the sub-periods. The results from this econometric analysis provide import demand and export supply elasticities of dissolving pulp, cellulose chemical derivatives and cellulose textile fibres. In addition, we present elasticity estimation for the apparent consumption of dissolving pulp. Our findings outline the significant relationship between both export supply and import demand volumes and relative changes in prices and income. Across time periods, elasticities of cellulose-based derivatives and textile fibres do not show a clear trend towards more elastic or inelastic coefficients. However, the price elasticities of dissolving pulp fluctuate strongly from inelastic to highly elastic over time. Elasticity estimates of export supply indicate that it is sensitive to international competitiveness which in turn is governed by international demand. Finally, we statistically show that the estimated price and income elasticities of import demand can be analogously interpreted as the demand elasticity of apparent consumption. This is of great importance for economic equilibrium models, such as GFPM or EFI-GTM, in order to simulate and analyze forest sector developments and scenarios.

Time-varying parameters of Croatian import demand

The paper aims to examine Croatian import demand elasticities to changes in income and relative prices while allowing time variation in parameters of import demand. Data sample consist of quarterly time series data over the period 2000 q1 -2018 q3. Following state space model with time-varying parameters approach estimates were obtained and tested. The results revealed persistent and high income elasticity of import demand in Croatia. However, the role of relative prices has changed over the observed period and eventually cannot be distinguished from zero. The findings from this research supported the hypothesis of prices convergence in Croatia towards the prices within European Monetary Union member countries. Furthermore, results found no significant effect on Croatian import demand when Croatia joined the European Union. The research results indicate that, due to a relatively high income elasticity of import demand and convergence of import prices, production of innovative and sophisticated products should be facilitated.

The income elasticity of import demand: Micro evidence and an application

We construct a synthetic panel of household expenditures from the Consumer Expenditure Survey (CEX) and use the Quadratic Almost Ideal Demand System to estimate expenditure shares and income elasticities of demand that vary by good-time-income. We show that the size and distribution of income shocks drives expenditure change in a manner that varies profoundly across traded goods. Our estimates of expenditure shares and income elasticities could be useful in many applications that seek to explain changes in trade behavior from the demand side, and indicate the strong sensitivity of trade to changes in the tails of the income distribution. We explore an application involving the Great Trade Collapse. Income-induced expenditure changes are positively correlated with the cross-good pattern of import changes, generating a predicted change as much as 40% as large as the raw variation in import declines.

South-South trade and South-North trade: Which contributes more to development in Asia and South America? Insights from estimating income elasticities of import demand

The experience of the global economic crisis led developing countries to intensify the diversification of sources of growth, seeking alternative models of economic development. The expansion of South-South trade assumed greater significance in the context of this search. Yet how promising a strategy is this? In attempting to answer this question, this paper documents the evolution of South-South trade and puts forward some theoretical considerations. It then undertakes an econometric analysis to estimate the income elasticities of import demand in bilateral trade relationships among developing Asian and South American countries and two key Northern markets. On applying an ARDL model, the analysis yields mixed results in terms of whether South-South trade presents higher income elasticities than South-North trade. Still, the findings show that South-South trade can be an alternative source of growth, especially if South-North income and import growth differentials persist.

How Could the South Respond to Secular Stagnation in the North?

AbstractDeveloped countries face the risk of a sustained lack of aggregate demand, that is, secular stagnation. Demand‐oriented growth models emphasising the balance‐of‐payments constraint raise concerns about attendant adverse growth impacts on developing countries from reduced export growth. These concerns are well‐founded, albeit less serious than the simplest versions of these models would imply. Relaxing their assumptions and emphasising cumulative causation forces from domestic‐demand growth and relative price effects indicates how developing countries can combine export and domestic‐demand based strategies and how changed policies can maintain rapid growth while reducing the income elasticity of import demand.

Bootstrap Inference of Level Relationships in the Presence of Serially Correlated Errors: A Large Scale Simulation Study and an Application in Energy Demand

By undertaking a large scale simulation study, we demonstrate that the maximum entropy bootstrap (meboot) data generation process can provide accurate and narrow parameter confidence intervals in models with combinations of stationary and nonstationary variables, under both low and high degrees of autocorrelation. The relatively small sample sizes in which meboot performs particularly well make it a useful tool for rolling window estimation. As a case study, we analyze the evolution of the price and income elasticities of import demand for crude oil in Turkey by using quarterly data between 1996---2011. Our approach can be employed to tackle a wide range of macroeconometric estimation problems where small sample sizes are a common issue.

RESTRICCIÓN EXTERNA AL CRECIMIENTO DE ARGENTINA. EL ROL DE LAS MANUFACTURAS INDUSTRIALES

Recent tensions in the current accounts of Argentina have reopened the debate regarding external constraints on growth (ecg). In 2003-2013, export growth was slightly lower than it was during the convertibility era, but a major decline in the income elasticity of import demand mitigated the ecg. However, the effective growth rate was higher than that imposed by the ecg, according to Thirlwall's law, which led to the deterioration of the trade balance and growth. This was due to the trade deficit in manufactured goods of industrial origin (mio), in light of technology dependence in capital goods and inputs. This paper analyzes the evolution of ecgs in Argentina at both the global and sector level, aiming to determine which mio sectors had the greatest impact.

How Promising is South-South Trade as a Contributor to Economic Development in Asia and South America? Insights from Estimating Income Elasticities of Import Demand

The recent global economic crisis which originated in the global North but quickly spread to the global South has raised questions about the desirability and viability of export regimes primarily orientated towards the markets of high-income countries. The experience of crisis and contagion made developing countries intensify their efforts to diversify sources of economic growth and their search for alternative models of economic development. Expanding South-South trade relationships increasingly became viewed as one such alternative. Yet how promising a strategy is this? In an attempt to provide an answer to this question, this paper first documents the dynamic evolution of South-South trade in past decades and puts forward some theoretical considerations. It then undertakes an econometric analysis to estimate income elasticities of import demand for bilateral trade relationships among a sample of developing Asian and South American countries and two key Northern markets, the Eurozone and the US. Applying an ARDL approach to estimation, our econometric analysis yields mixed results with regard to the question whether South-South trade is generally characterized by higher income elasticities of import demand than South-North trade. While this is largely true for trade involving developing Asian economies, the same does not hold for South American countries. Moreover, income elasticities for imports from the global South are comparatively high in the US (and actually higher than for South-South trade flows in many cases) but this does not equally apply for the Eurozone. Still, our findings show that South-South trade can be a promising alternative source of economic growth, especially if South-North income growth and import growth differentials in favor of the former continue to persist. These findings, thus, provide a rationale for policies aimed at facilitating trade among developing countries.

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.

Do the BRICs and Emerging Markets Differ in their Agrifood Imports?

AbstractThis study develops an import demand model to explore the role of income in explaining the trade performance of low‐, middle‐ and high‐income countries with a special emphasis on Brazil, Russia, India and China – the BRIC economies. The study estimates the impact of the growth in per capita income on the trade of agrifood products using data from 52 countries and 20 agrifood products for the years 1990–2006. The results suggest that China, Russia and Brazil now have more income elastic import demands than other middle‐income countries. Conversely, the income elasticities of import demand in India are similar to other low‐income countries and for the most part statistically equal to zero.

Import demand for Brazilian ethanol: a cross-country analysis

This study presents an empirical analysis of the import demand for Brazilian ethanol by its six major foreign buyers. The primary objectives of this study were to identify the economic factors affecting the demand for ethanol imports and to derive long-run price and income elasticities of import demand. These elasticities could be used to analyze the impact of government policies such as mandatory gasoline/ethanol blends and import tariffs. Import demand models were estimated with ordinary least squares (OLS), using quarterly time series data for the 1997–2007 time period. The results suggest that the factors influencing the import demand for ethanol vary across countries. Markets adopting mandatory blends of renewable fuels tend to have less price elastic import demand schedules. Ethanol imports were found to be price elastic and statistically significant in the Caribbean region (−1.66), Mexico (−2.08), Japan (−1.44) and Nigeria (−1.38), while import demand was price inelastic and not statistically different from zero in the US (−0.76) and Europe (−0.21). The regression results could not determine the impacts of import tariffs for the United States, Mexico and Nigeria on the quantity of imports because tariffs did not vary during the time period studied. Results show that mandatory gasoline/ethanol blends have been an important determinant of ethanol imports.

The link between economic development and the income elasticity of import demand

In both the international economics and economic development literatures, it has been noted that there is a tendency for the income elasticity of import demand to rise over time. In the first part of the paper, data from a large sample of countries is used to show that this tendency seems to be a general phenomenon. However, the previous studies on this issue have not offered a general explanation of this tendency. The second part of the paper develops a general explanation of why the income elasticity of import demand rises with the level of GDP per capita. The starting point of the analysis is that the process of economic development normally is associated with a rising share of manufacturing in GDP. In turn, this tends to increase the share of manufactured relative to nonmanufactured imports. Given that the income elasticity of import demand is higher for manufactured than nonmanufactured imports, the changing composition of imports increases the overall elasticity of import demand. The empirical results indicate that this is a plausible explanation for why the income elasticity of import demand rises with the level of GDP per capita.

Trade Creation, Trade Diversion effects of NAFTA on vegetable and fruit trade flows

The present study empirically estimates and evaluates the impact of NAFTA in the vegetable and fruit trade between the USA and Mexico. The import price elasticities suggest that imports are not sensitive to price changes. However, the income elasticities of import demand vary by commodities. As expected, the vegetables and fruits exhibit strong seasonality while the import dynamics are commodity-specific. The amount of trade expansion is estimated using import price elasticities from a dynamic import demand model for the commodities. This study demonstrates that there is trade expansion attributable to NAFA in the vegetable and fruit trade. The amount of Trade Creation (TC) is greater than the amount of Trade Diversion (TD) in most commodities examined.

Long-Run Supply Effects and the Elasticities Approach to Trade

Krugman (1989) argued that differences across countries in estimated income elasticities of import demand are due to omission of an exporter supply effect. He showed that such an effect can be derived in a theoretical model with economies of scale in production and a taste for variety in consumption. In his model, countries grow by producing new varieties of goods, and they are able to export these goods without suffering any deterioration in their terms of trade. This paper analyzes U.S. import demand from different source countries and finds strong evidence of a supply effect of roughly half the magnitude (0.75) of the income elasticity (1.5). Price elasticities for the most part are estimated close to -1, which is typical for the literature. Exclusion of the supply effect leads to overestimation of the income elasticity. Results based on U.S. exports to different destinations are less robust, but largely corroborate these findings.

Long-Run Supply Effects and the Elasticities Approach to Trade

Krugman (1989) argued that differences across countries in estimated income elasticities of import demand are due to omission of an exporter supply effect. He showed that such an effect can be derived in a theoretical model with economies of scale in production and a taste for variety in consumption. In his model, countries grow by producing new varieties of goods, and they are able to export these goods without suffering any deterioration in their terms of trade. This paper analyzes U.S. import demand from different source countries and finds strong evidence of a supply effect of roughly half the magnitude (0.75) of the income elasticity (1.5). Price elasticities for the most part are estimated close to -1, which is typical for the literature. Exclusion of the supply effect leads to overestimation of the income elasticity. Results based on U.S. exports to different destinations are less robust, but largely corroborate these findings.

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.

An empirical examination of the disaggregated import demand of Korea—the case of information technology products

This article presents an empirical analysis of the import demand for certain information technology products in Korea. These products have been recognized as essential for further economic growth in Korea, as the Korean government aims to transform the economy into one based on information technology. The unrestricted error correction model is used to derive the long run price and income elasticities of import demand, considering the small sample size. The price elasticities are revealed to be quite high in all cases, implying that lowering of the tariff rates would increase the import of those products substantially.