Income Elasticity Of 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.

Inequality and the Import Demand in Turkey

The study aims to see whether the long-run relation between inequality and import demand exists in Turkey. The Autoregressive Distributed Lag (ARDL) cointegration technique is used in this study to estimate the long-run relationships between real imports, income, relative price, real exports, and inequality for the period 1982-2015. The results revealed that the income elasticity of imports is greater than one as the literature suggests. The sign of the coefficient of relative price and its magnitude is also compatible with the literature, while it is not statistically significant. However, the results further reflect that inequality is positively associated with real imports in Turkey contrary to assumptions of the relation between inequality and imports that is found to be negative for lower income countries in some studies. Short-run coefficients reflect that real income and relative prices are associated with real imports, whereas exports and not surprisingly, inequality variables are not in the short-run. The coefficient of income parameter is less in magnitude in the short-run but still greater than one. However, the sign of the coefficient of the relative price turns out to be positive in the short-run.

Externally constrained growth: Testing the applicability of Thirlwall’s law in South Africa

ABSTRACTThis study tests whether the performance of South Africa’s trade balance, that is, the country’s export and import performance, can effectively explain the economy’s growth rate. Formally, the study tests the applicability of Thirlwall’s law to the South African economy. The law states that the estimated growth rate of an economy is proportional to the growth rate of exports divided by the income elasticity of imports. The South African Reserve Bank (SARB) quarterly data from 1960 to 2009 for exports, imports, the exchange rate, export prices, import prices, and the economic growth rate is used for regression. The study runs an autoregressive distributed lag (ARDL) model in the presence of structural breaks and after adjusting for structural breaks and finds that growth in the South African economy can be shown to be trade balance constrained. This finding has policy implications with regard to trade promotion and strategies and strategies to enhance growth performance by increasing the overall competitiveness of the South African economy.

A balança comercial é uma restrição ao crescimento econômico dos estados brasileiros? Uma análise para o período de 1991 a 2009

RESUMO Este trabalho investiga se há de fato uma restrição imposta pelo balanço de pagamentos - via relação entre as elasticidades-renda das importações e das exportações - sobre o crescimento econômico dos estados brasileiros. Em outros termos, verifica-se a validade da Lei de Thirlwall para a economia dos estados brasileiros no período de 1991 a 2009. Para tanto, estima-se as referidas elasticidades por meio do estimador para painéis dinâmicos System-GMM, que contorna, além dos problemas clássicos de estimação, o viés de endogeneidade do painel dinâmico. Os resultados apontam para a validade da lei, visto que a elasticidade-renda das importações mostrou-se superior à elasticidade-renda das exportações.

Import Demand Income Elasticity and Growth Rate in Pakistan

This article applies the import demand function and constrained growth model in case of Pakistan and investigates for the impact of trade liberalization using data for the period of 1981–2010. The autoregressive distributed lag method and rolling regression analysis are employed to estimate import demand income elasticity. In results, the imports are found to be highly sensitive to the changes in income level. In addition, a trend of gradual increase in income elasticity of imports has been found since the aftermath of trade liberalization. However, no evidence has been found that indicates that the growth rate is increased as a consequence of liberalization. The liberalization has not increased export growth in association with the rising growth in import demand income elasticity. Thus, it is concluded that liberalization has increased the external constraint over economic growth.

The Multi-Sectoral Thirlwall’s Law: evidence from 14 developed European countries using product-level data

The paper reports estimates of import and export functions for five technological sectors in 14 developed European countries. These functions have never before been estimated for developed countries adopting a technological classification of sectors. The paper compares estimates of income elasticities found using vector error-correction models employing aggregate deflators, with estimates found using cross-product panels employing product-specific quality-adjusted price indexes recently calculated by Feenstra and Romalis. The results indicate that the income elasticities of imports and exports are higher for medium- and high-tech manufactures, which suggests the importance of moving from the production of simple goods to the production of goods with high technological content. The estimates also suggest that the Multi-Sectoral Thirlwall’s Law holds for the countries analysed, while comparing the estimates revealed that cross-product panels with quality-adjusted prices generate considerably more robust results. The investigation reveals that using a more recent time period generates estimates of income elasticities of demand for primary products and resource-based manufactures that tend to be higher than the estimates found by studies that have used longer time periods, while the opposite holds for low-, medium-, and high-tech manufactures.

Wage-led ou profit-led? Análise das estratégias de crescimento das economias sob o regime de metas de inflação, câmbio flexível, mobilidade de capitais e endividamento externo

Neste artigo apresentamos um modelo macrodinâmico de inspiração pós-keynesiana com o objetivo de analisar os efeitos da abertura da conta de capitais sobre a performance macroeconômica das economias em desenvolvimento. Neste particular, os exercícios de estática comparativa mostram que um aumento do endividamento externo pode ter efeitos benéficos para a economia no curto prazo, uma vez que induz o aumento do grau de utilização da capacidade produtiva e da taxa de crescimento do estoque de capital. No entanto, a dinâmica de longo prazo mostra que, sob certas condições, o acesso ao mercado internacional de capitais pode gerar trajetórias explosivas para o sistema econômico, notadamente em um contexto em que a política monetária é conduzida com base em um regime de metas de inflação. Além disso, demonstra-se que uma redução da meta de inflação perseguida pelo Banco Central, dentro do contexto de abertura da conta de capitais e de captação externa por parte das empresas, pode gerar um aumento permanente da taxa real de juros, bem como um aumento do próprio custo do endividamento externo da economia contribuindo, assim, para uma maior fragilidade externa. Ademais, analisou-se a consistência das estratégias de crescimento das economias desenvolvidas e em desenvolvimento. No geral, os resultados encontrados mostram a validade da Lei de Thirlwall, de modo que o regime de crescimento das economias depende, em última análise, das restrições impostas pelas elasticidades-renda das importações e exportações.

The Origins and Development of the Latin American Structuralist Approach to the Balance of Payments (1944-1964)

The paper offers an historical account of the origins and development of the Latin American structuralist approach to the balance of payments between 1944 and 1964. We focus on the contributions by Raul Prebisch, Celso Furtado and Juan Noyola, all of them members of the United Nations Economic Commission for Latin America (CEPAL) during the 1950s. Structuralist authors stressed the differences between balance of payments dynamics in developed (industrialized) and underdeveloped economies. Prebisch used the foreign trade multiplier concept to distinguish the business cycle mechanisms at the “centre” and at the “periphery”. Noyola introduced the notion of external disequilibrium as a feature of the economic development process. This was further elaborated by Prebisch’s formula connecting the relative rates of growth to the ratio of income-elasticities of imports, later restated by Anthony Thirlwall. Furtado examined in detail the implications of the effective external demand constraint for economic growth, an important element of the two-gap models of the 1960s. The main piece of structuralist research, from an empirical perspective, was the CEPAL 1957 report about external disequilibrium in Mexico elaborated by Furtado and Noyola, which was not published at the time. We discuss that report in the context of the Mexican devaluation of 1954, which also attracted the attention of J.J. Polak and other economists at the International Monetary Fund.

CRESCIMENTO ECONÔMICO E LEI DE THIRLWALL: UMA ANÁLISE PARA ECONOMIAS LATINO-AMERICANAS

O objetivo do presente estudo é demonstrar se, utilizando a metodologia Engle-Granger, os cinco países latino-americanos selecionados (Argentina, Brasil, Chile, Colômbia e México) realmente observaram para o período 1980-2005, uma variação na sua elasticidade renda das importações, de forma a que esta tenda a suavizar a restrição imposta pela lei de Thirlwall ao crescimento destes países, i.e., espera-se que um fluxo de capitais negativo, ou seja, uma fuga de capitais reduza a elasticidade renda das importações, implicando em uma maior taxa de crescimento que a possível se esta se mantiver constante durante esta fuga. Os resultados mostram que a lei de Thirlwall parece ser uma boa representação para a trajetória de crescimento destes, sendo esta determinada fundamentalmente, pelas exportações e pela elasticidade renda das importações.

Acumulação de capital, restrição externa, hiato tecnológico e mudança estrutural: teoria e experiência brasileira

Os períodos de crescimento acelerado da economia brasileira do pós-guerra até a década de 1970 foram constrangidos pela restrição externa. Propomos neste artigo um modelo baseado em Kaldor, em que estabelecemos uma relação entre acumulação de capital, hiato tecnológico e restrição externa ao crescimento de longo prazo para economias periféricas. A hipótese básica do modelo é que a acumulação de capital, sob certas condições, pode contornar a restrição externa ao crescimento dessas economias desde que o esforço de acumulação seja capaz de produzir uma mudança estrutural no sentido de aumentar a participação relativa dos setores mais dinâmicos do ponto de vista tecnológico. Essa mudança estrutural irá resultar em um aumento gradual da elasticidade-renda das exportações e numa redução da elasticidade-renda das importações, aumentando assim a taxa de crescimento do produto real que é compatível com o equilíbrio de longo prazo do balanço de pagamentos. Ilustramos ao final do artigo que a economia brasileira do pós-guerra até os anos 1970 apresentou uma elevada taxa de acumulação de capital, aprofundando o processo de substituição de importações, o que na nossa interpretação contribuiu para parcialmente permitir relaxar a restrição externa ao crescimento de longo prazo.

Foreign Trade and Economic Growth: Evidence of Thirlwall’s Law in Iran

Thirlwall’s law establishes a relation between the long-run growth rate, the growth of exports and the long-run income elasticity of imports. This paper applies Thirlwall’s basic balance-of-payments constraint growth model to Iranian economic growth for the period of 1971-2007 by using Autoregressive Distributed Lag (ARDL) Bounds Testing approach. The empirical results reveal that import is cointegrated with relative price and income, and the equilibrium growth rates coincide with actual growth rates. However, our estimated findings reveal that the Thirlwall’s law has been rejected in Iran. In other words, balance of payment doesn’t hinder economic growth in this country. The reason may be due to the fact that Iran is a member of OPEC and its oil export plays a significance role in the country’s foreign trade.

A note on intermediate imports and the BPCG model in Mexico

Numerous applications of the balance-of-payments-constrained growth (BPCG) model have concluded that Mexico’s equilibrium GDP growth rate fell after trade liberalization, because of a sharp rise in the income-elasticity of imports. Following the bounds testing approach of Pesaran et al. (2001), the present note estimates equations for intermediate and other types of imports in Mexico from 1960 to 2006. It shows that intermediate imports are significantly affected by manufactured exports, and that once the effect is controlled for, there is no significant rise in their income-elasticity—in contrast to what is observed for other types of imports. Since manufactured exports are highly intensive in imports, what the typical BPCG regression detects as an increase in the elasticity of intermediate imports may reflect a compositional effect, namely, the re-composition of GDP towards exports. Some implications for the BPCG model are briefly discussed in the conclusions.

Trade and Economic Development in South East Asia

Contrary to cross-country studies, this paper explores the regional relationships between trade and output growth for three rapidly developing Southeast Asian countries; Malaysia, Thailand and Indonesia, using time series framework and vector error-correction model. This article also investigates the balance-of-payment growth constraints of these three countries. The results suggest that there is evidence of growth-led exports in Malaysia and Thailand whereas growth-led imports hypothesis is supported in Thailand and Indonesia. There is also evidence of bidirectional causality between gross domestic product growth and trade flows. For balance-of-payments analysis, higher estimates of elasticity reflect greater trade liberalization and expansion of inter-regional trade. Therefore, a successful economic policy that increases the income elasticity of exports and/or reduces income elasticity of imports, permits a country to secure growth in demand and supply without suffering a deterioration in its balance of payments.

Estrutura produtiva, restrição externa e crescimento econômico: a experiência brasileira

Analisa-se a perda de dinamismo do crescimento econômico brasileiro a partir da década de 1980, utilizando a abordagem keynesiana de crescimento sob restrição externa. Resultados empíricos revelaram que a taxa de crescimento no período 1930-2004 foi a compatível com o equilíbrio externo e que o câmbio real e o fluxo de capitais tiveram um papel reduzido na obtenção desse equilíbrio. Mas a perda de dinamismo do crescimento, a partir da década de 1980, pode ser explicada por uma maior perversidade desse equilíbrio, dado o comportamento do fluxo de capitais e do câmbio real. Nos anos 1990, por sua vez, a estratégia de desenvolvimento provocou uma quebra estrutural na elasticidade-renda das importações, fazendo com que o equilíbrio externo resultasse em uma taxa de crescimento mais baixa.

Income and Exchange Rate Elasticity of Imports and Exports

This paper examines the income and exchange rate elasticities of imports and exports for India. We use annual time series data to estimate the Import and Export demand functions for India to investigate income and exchange rate elasticities. Due to non-stationarity of data series used in the estimation (as verified by Augmented-Dickey-Fuller [ADF] test) Johansen Co-integration Test is used to establish the cointegration between hypothesized multi-variate log-linear import and export demand function. The cointegration coefficients are estimated using the Vector Error Correction Model [VECM]. Although considerable variations exist in the results, exchange rate elasticity of imports and exports suggest that Marshall-Lerner condition does not hold in India at present. Varying degree of J-curve effects are seen in the case of devaluation of Rupee [1966 & 1991]. Income elasticity of imports establishes that Elasticity Puzzle does not exist in the case of India. These results are contrary to the existing empirical studies. The observed statistics have been intuitively reasoned in light of India's current macroeconomic scenario.

Balance of Payments Constrained Economic Growth in the Baltics

This paper examines, the prospects for economic growth in the three Baltic countries in a framework of a balance of payment constrained growth model. Based on an estimation of income elasticities of imports and assumptions about export growth, GDP growth rates are calculated consistent with balance of payment equilibrium or alternatively, consistent with a given growth rate of capital imports. The results show that the calculated rates of growth for Estonia and Lithuania are lower than the growth rates predicted from traditional supply side oriented growth models.

Mexico's Economic Growth and the Balance of Payments Constraint: A cointegration analysis

This paper applies the basic balance-of-payments constraint model (BPCmodel), developed by A.P. Thirlwall, to the analysis of Mexico's economic growth in 1950-96.With the use of unit-root tests and cointegration analysis it estimates the long-run association between the growth of Mexico's real exports and real output in 1950-96, and selected subperiods. The results tend to show significant and positive cointegration between these two variables, thus giving support to the BPC-model as a relevant hypothesis to explain Mexico's long-term economic growth. Moreover, the findings of cointegration tests for selected subperiods suggest that the slowdown in its economic growth since 1982 is associated with an increase in the long-term income elasticity of imports that made more binding the balance-of-payments constraint on the expansion of domestic output.

On Capital Flows and The Balance-of-Payments-Constrained Growth Model

(1998). On Capital Flows and The Balance-of-Payments-Constrained Growth Model. Journal of Post Keynesian Economics: Vol. 21, No. 2, pp. 283-298.

Demand for dairy products in Mexico

Abstract Mexico is the world's largest importer of non-fat dry milk (NFDM) and imports of cheese, fluid milk, and whey have increased rapidly in the past four years. In the wake of GATT and the NAFTA, as well as recent economic developments in Mexico, world dairy markets will be affected as a result of changes in the Mexican dairy sector. The study analyzes both domestic and import demand for dairy products in Mexico to determine price and income elasticities as well as import elasticities. The results indicate that the demand for fluid milk is the most responsive to price changes and NFDM demand is inelastic with respect to its own price. There is little subtitution between fluid milk and non-fat dry milk, although fluid milk is relatively elastic, which suggests the existence of other substitutes for fluid milk. Estimation of import demand equations reveal similar trends in response to price changes, but income elasticity of imports was highest for fluid milk which suggests that Mexico will import possibly more fluid than dry milk as incomes rise. The exchange rate was the most significant variable influencing all dairy product imports.

Demand for dairy products in Mexico

AbstractMexico is the world's largest importer of non‐fat dry milk (NFDM) and imports of cheese, fluid milk, and whey have increased rapidly in the past four years. In the wake of GATT and the NAFTA, as well as recent economic developments in Mexico, world dairy markets will be affected as a result of changes in the Mexican dairy sector.The study analyzes both domestic and import demand for dairy products in Mexico to determine price and income elasticities as well as import elasticities. The results indicate that the demand for fluid milk is the most responsive to price changes and NFDM demand is inelastic with respect to its own price. There is little subtitution between fluid milk and non‐fat dry milk, although fluid milk is relatively elastic, which suggests the existence of other substitutes for fluid milk.Estimation of import demand equations reveal similar trends in response to price changes, but income elasticity of imports was highest for fluid milk which suggests that Mexico will import possibly more fluid than dry milk as incomes rise. The exchange rate was the most significant variable influencing all dairy product imports.