Habit persistence and the structure of international commodity trade

The paper analyzes the commodity structure of exports and imports of nine industrialized countries, using a dynamic version of the Linear Expenditure System. The hypothesis implied by this approach is that the structure of commodity trade can be explained by a combination of habit persistence and constant marginal expenditure shares. Application of the model to the trade composition of nine countries shows that there are considerable differences in the strength of habit persistence across countries and across commodity groups as well as between exports and imports. These are crucial for the explanation of the associated expenditure and price elasticities.