Trade elasticities in transition countries

Trade elasticities play a crucial role in translating economic analysis of external adjustment issues into macroeconomic policy. Trade demand elasticities allow policy makers to draw important conclusions about exchange rate misalignments or trade balance changes. This paper endeavors to bring transition countries, namely those from Central and Eastern Europe and the Commonwealth of Independent States, into the universe of estimated price and activity elasticities of trade volumes. The estimated results imply that the traditional ‘Marshall-Lerner’ condition is not satisfied for transition countries. The estimated price elasticities of export and import demands perform fairly well in predicting out-of-sample changes in trade balance ratios for a broad set of transition countries. In the long run, however, exports and imports are mainly driven by income changes.     

An aggregate import demand function for greece

This study estimates the aggregate import demand function for Greece using annual data for the period 1951–92. There are two methodological novelties in this paper. The authors find that the variables used in the aggregate import demand function are not stationary but are cointegrated. Thus, a long-run equilibrium relationship exists among these variables during the period under study. The price elasticity is found to be close to unity in the long run. The cross-price elasticity is also found to be close to unity. Import demand is found to be highly income elastic in the long run. This implies that with economic growth, ceteris paribus, the trade deficit for Greece is likely to get worse.     

Can trade liberalisation in South Africa reduce poverty and inequality while boosting economic growth? Macro–micro reflections

South Africa is trapped in a cycle of modest growth, unacceptable poverty levels and record unemployment. This has led to renewed interest on the relationship between macro (growth) and micro (poverty and distribution) issues. This paper uses a macro–micro tool that couples a computable general equilibrium model with microsimulation models to examine the impact of further unilateral trade policy reforms on growth, poverty and welfare. Trade liberalisation alone has very minimal short-run macroeconomic consequences while its long-term impacts are positive and magnified by technical factor productivity (TFP) effects. Trade liberalisation has no appreciable impact on poverty in the short run even if we allow for trade-induced TFP increases. In the long run, however, poverty reduces even in the case when we do not allow for TFP increases. Trade liberalisation policy has been found to be progressive despite the low level of tariff protection remaining in South Africa.     

A dynamic analysis of the impact of uncertainty on import- and/or export-led growth: The experience of Japan and the Asian Tigers

Increasing integration of the Asian Tigers with the world economy through trade has exposed their income and trade to greater uncertainty and volatility. This paper models uncertainty in trade and income and re-examines the stability of the trade-growth nexus for Japan and the Asian Tigers in a dynamic framework. We find that in a volatile environment Japan's GDP growth is only import-led while Hong Kong's GDP growth is both export and import growth-led. On the other hand, incorporating uncertainty breaks the causal link between Korea's GDP growth and trade but it does not affect Taiwan's mutually causative relationship between GDP growth, with exports and imports. Lastly, the varied qualitative and quantitative impact of volatility in imports and exports on income growth among the Asian Tigers provides further thought for policy making.     

Exports,imports and growth: New evidence on Italy: 1863–2004

The nexus between trade and economic growth in Italy has been widely debated by historiography. However, there are no long run analyses on this topic that cover the whole span from Unification to present days. This paper contributes to fill this gap by investigating the relationship between real exports, imports and GDP in Italy from 1863 to 2004 by using cointegration analysis and causality tests. The outcome suggests that these variables comove in the long run but the direction of causality varies across time. In the period prior to the First World War import growth led GDP growth that in turn led export growth. Conversely, in the post-Second World War period we have a strong bidirectionality between imports and exports consequent on the increase in intra-industry trade. We also find a weak support for export-led growth and growth-led imports. This suggests that exports were not the only or the main driver of economic growth. There was probably a multiplicity of factors at work, among which high rates of capital formation and the expansion of internal demand probably stood out.     

Determinants of shrimp importation into the USA: an application of an augmented gravity model

Shrimp farmers in the USA are facing the situation of increased imports resulting in reduced market share, falling prices, and reduced profitability for their farm-raised shrimp. The study examined the determinants of shrimp imports from China, Vietnam, Thailand, and Indonesia using an augmented gravity model of international trade. The results reveal that US imports from the four exporting countries are significantly affected by the GDP of exporting countries, GDP of the USA, exchange rate, unit import value (proxy for import price) of shrimp, and tariff. Tariff policy has implications for the US shrimp industry.     

Price and income elasticities: evidence from commodity trade between the U.S. and Egypt

Elasticity approach to balance of payments postulates that a country can enjoy an improvement in its trade balance in the long run if sum of import and export demand price elasticities exceed unity, a condition known as the Marshall-Lerner condition. Previous research tested this condition either using aggregate trade data between one country and rest of the world or between two countries and provided mixed results. They are all said to suffer from aggregation bias. To remove the bias, in this paper we concentrate on trade flows of two countries, i.e., the U.S. and Egypt and disaggregate their trade flows by commodity. The estimates reveal that the ML condition is met in 28 out of 36 industries that trade between the two countries.     

Exchange rate sensitivity of Japan’s bilateral trade flows

The traditional way of assessing the impact of currency depreciation on the trade balance has been to estimate the elasticity of trade volume to relative prices. To this end, most previous studies used aggregate trade data. To shy away from problems associated with using aggregate data, recent studies have relied on bilateral trade data. Since import and export price data is not available on bilateral level, this study proposes an alternative way of assessing the impact of currency depreciation on bilateral trade flows. The models are applied between Japan and her nine largest trading partners using recent advances in time-series modeling.     

The impact of AFTA on intra-AFTA trade

ASEAN countries have liberalised intra-ASEAN trade over the last 20 years by establishing the ASEAN Free Trade Area (AFTA). This paper aims to examine the impact of trade liberalisation under AFTA on intra-ASEAN trade. By applying a gravity model, we find positive and significant trade creation effects from the tariff elimination for a wide range of products. In addition, the analysis reveals that the elasticity of tariff reduction on imports tends to be much larger than that on exports. Trade creation effects for the new ASEAN members are relatively small compared to those for the old members. Our results show that AFTA has been successful in promoting intra-AFTA trade, while we argue that further expansion may be achieved by increasing the use of AFTA and by reducing/removing non-tariff measures (NTMs) through such ways as improving customs procedures and harmonizing/mutually recognizing product standards.     

Integration and intra-industry trade adjustment in South Africa

This article analyses intra-industry trade adjustment by the Southern African Customs Union after 1994, and links between trade liberalisation and employment are examined. The traditional Grubel-Lloyd index is complemented by marginal inter- and intra-industry trade measures, and trade expansion of sectors is scaled, related to change in total exports and imports. In three different empirical approaches, large differences are found: in the level of intra-industry trade (IIT) between different sectors (categorised into resource-based, labour-intensive, scale-intensive and differentiated industries); in the level of IIT of individual sectors in trade with the SADC6, the European Union and the rest of the world; and in the economic significance of trade expansion for different industries and with different trading partners. Trade expansion is dominated by differentiated and scale-intensive industries, indicating that the main economic gain of international integration is found in the opportunity to exploit economies of scale in a larger market. IIT and marginal IIT are positively related to increases in labour productivity, and negatively related to employment change. Interindustry trade and both export and import expansions are positively related to employment gain, but only export is positively related to increased labour productivity.     

Trade Liberalization and National Food Security: Rice Trade between Bangladesh and India

Following a poor harvest in late 1997 and a massive flood in 1998, private sector traders in Bangladesh imported several million metric tons of rice from India. This paper presents evidence that this trade, made possible by separate trade liberalizations in India and Bangladesh in the early 1990s, augmented domestic supplies and stabilized prices in Bangladesh at import parity levels. Letters of credit data indicating the participation of hundreds of importers, and a close correlation of price movements across the two countries suggest that the trade was competitive. A risk of co-incident crop shortfalls in the two countries remains, though these have occurred rarely in the past two decades. Bangladesh imports from alternative sources would also enhance food availability if another production shortfall occurs, but these imports face higher transport costs and would involve far fewer importing firms given the economies of scale of shipments by sea.The positive contribution of trade liberalization to short-run food security in Bangladesh in recent years does not minimize the importance of increased agricultural productivity and rural economic growth to provide rural poor households with sufficient incomes to acquire food. Nonetheless, the Bangladesh experience shows that trade liberalization offers potential benefits for national food security by enabling a rapid increase of food supplies following domestic production shortfalls.     

The recent behavior of Japanese imports: A disaggregated analysis

This study investigates the factors behind the recent surge in Japanese imports. It finds evidence of a rise in the long-run income elasticity of total real imports in the mid-1980s. The increase derives from similar behavioral changes at the end-use level and, to a lesser extent, major compositional shifts in the structure of Japanese imports. The behavioral changes in aggregate and end-use imports are likely to reflect important structural developments in the Japanese import market and have potentially significant implications for the impact of macroeconomic policies in Japan on future import performance.     

EXPORT‐LED GROWTH HYPOTHESIS: FURTHER ECONOMETRIC EVIDENCE FROM SOUTH ASIA

This paper examines the export‐led growth (ELG) hypothesis for five South Asian countries through cointegration and multivariate Granger causality tests. Strong support for a long‐run relationship among exports, imports, and real output for all the countries except Sri Lanka were found. Feedback effects between exports and GDP for Bangladesh and Nepal and unidirectional causality from exports to output in the case of Pakistan were found. No causality between these variables was found for Sri Lanka and India, although for India GDP and exports did induce imports. A feedback effect between imports and GDP was also documented for Pakistan, Bangladesh, and Nepal, as well as unidirectional causality from imports to output growth for Sri Lanka. These and other findings are discussed from the standpoint of the export‐led growth hypothesis.     

Determinants of agro-food trade competition of Central European countries with the European Union

The two-way trade flows are classified into four competition categories: successful price competition when trade surplus is at lower export than import price, unsuccessful price competition when trade deficit is at higher export than import price, successful quality competition when trade surplus is at higher export than import price, and unsuccessful quality competition when trade deficit is at lower export than import price. Using a panel dataset of determinants of agro-food trade competition between the five Central European Countries (Czech Republic, Hungary, Poland, Slovakia, and Slovenia) and the European Union, we found the effect of trade balance on trade competition to be more significant than the effect of export–import unit values. Natural, and to a lesser extent human factor endowments increase price and quality competition and reduce unsuccessful price and quality competition. R&D expenditures improve quality competition and reduce price competition. Foreign direct investment reduces unsuccessful price competition and increases unsuccessful quality competition. The size of the economy improves price competition and reduces quality competition. Consumer demands associated with higher level of income per capita increase unsuccessful price and quality competition.     

江苏省进口贸易与经济增长的关系——基于进口商品结构的实证分析

长期以来,我国专家学者们都比较重视出口对经济增长的促进作用,而低估甚至忽视了进口贸易和经济增长之间也存在着紧密的联系。本文通过对江苏省1990~2007年国内生产总值(GDP)、初级产品进口和工业制成品进口三类数据的研究,利用协整检验等工具分析得出进口贸易特别是工业制成品进口对经济增长有促进作用,进口贸易和经济增长之间存在着长期稳定的关系。本文最后对江苏省进口贸易发展提出了一些建议。     

RCEP关税减让对各成员国的经济影响分析

大幅度削减成员国间关税是RCEP协议的核心内容,为了揭示RCEP成员国间关税减让的经济影响,文章首先分析了RCEP成员国间贸易现状、产品结构、进口关税和贸易竞争力,然后,运用GTAP模型模拟RCEP关税减让对各成员国宏观经济和产出的影响,得到结论如下：（1）RCEP关税减让可以缓解中美贸易摩擦对于中国经济的不利影响;（2）就短期而言,RCEP成员国间关税减让可以提高中国、日本、韩国和澳大利亚的GDP、社会福利、居民收入和消费水平等宏观经济效益,同时,还可以提高中国、韩国、澳大利亚、东盟的总产出水平;（3）就长期来说,实施零关税可能显著提升RCEP大多数成员国的宏观经济效益和产出水平。     

Errors-in-variables, supply side effects, and price elasticities in foreign trade

Errors-in-Variables, Supply Side Effects, and Price Elasticities in Foreign Trade.—Previous estimates of price elasticities in foreign trade are likely to be biased upward due to errors-in-variables, omission of supply side influences, aggregation, bad measurement of price competitiveness, and misspecification of the estimation equations. This paper incorporates the supply side into the traditional demand for export equation and uses a panel data approach for OECD manufacturing to provide unbiased estimates of price elasticities. The estimates indicate that the sum of the absolute import and export price elasticities is close to one and that currency depreciations are likely to adversely affect trade balances in the long run due to supply side influences. JEL no. E3, F1, F4     

Exchange Rates and Trade Balance Adjustment: A Multi-Country Empirical Analysis

This study assesses the response of the trade balance to exchange rate fluctuations across a large number of countries. Fixed-effects regressions are estimated for three country groups (industrial, developing and emerging markets) on annual data for 87 countries from 1994 to 2010. The trade balance improves significantly after a real depreciation, and to a similar degree, in the long run for all countries, but the adjustment is significantly slower for industrial countries. Emerging markets and developing countries display relatively fast adjustment. Disaggregation into exports and imports shows that the delayed adjustment in industrial countries is almost entirely on the export side. The rate of adjustment in emerging markets is slowing over time, consistent with their eventual graduation to high-income status. The ratio of trade to GDP is also highly sensitive to the real effective exchange rate, with a real depreciation of 10 % raising the trade/GDP ratio across the sample by approximately 4 %. This result, which presumably reflects movements in the prices of tradables relative to non-tradables, raises questions about the widespread use of the trade/GDP ratio as a trade policy indicator, without adjustment for real exchange rate effects.     

An empirical analysis of China's aggregate import demand function

This study uses the cointegration concept to analyze the long-run relationship of China's aggregate import demand function for the period 1970–1999. The conventional specification for the import demand function reveals that the volume of imports demanded responds to domestic activity and relative prices. This study considers four definitions of domestic activity, namely gross domestic product (GDP), GDP minus exports [IMF Staff Pap. 45 (1998) 236], “national cash flow” [Econ. Lett. 74 (2002) 265], and final expenditure components [Appl. Econ. 21 (1989) 957]. The empirical results indicate a long-run equilibrium relationship between these measures of domestic activity and China's import demand. Overall, domestic activity and relative prices are inelastic in the long run. This study also highlights some policy implications.     

Trade effects of silver price fluctuations in 19th-century China: A macro approach

We assess the role of silver price fluctuations in Chinese trade and GDP during the late Qing dynasty, when China still had a bimetallic (silver/copper) monetary system, in which silver was mostly used for international trade. Using a structural VAR (SVAR) with blockwise recursive identification, we identify the impact of silver price shocks on the Chinese economy from 1867, when trade data became available, to 1910, one year before the Qing dynasty collapsed. We find that silver price shocks had a sizable impact on both imports and exports but only a very minor effect on the trade balance, only a marginal impact on growth, and almost no effect on domestic prices. Stronger effects were partly mitigated by inelastic export quantities. Generally, the effect of silver price shocks, while considerable, was only short-lived, displaying no persistence in either direction. We find that the bimetallic system in Qing China might have mitigated a potential positive effect of silver depreciation but did not reverse the effect, which – contrary to claims made in the previous literature – was responsible for neither the worsening trade balance nor the inflation and the quickly increasing imports that occurred during our sample period.