Income and Price Elasticities of Foreign Trade Flows: Econometric Estimation and Analysis of the US Trade Deficit

  • Jaime Marquez
Part of the Advanced Studies in Theoretical and Applied Econometrics book series (ASTA, volume 17)

Abstract

That the rest of the world will absorb the reduction of the US trade deficit is a matter of accounting: because this deficit is the trade surplus of the rest of the world, eliminating one means eliminating the other. What is not so evident is which countries will absorb this reduction, an issue of growing interest in view of the significant re-allocation of productive factors that are likely to emerge. That the US trade deficit will improve in response to a real depreciation of the dollar is not in doubt. What is not so clear is how long it will take, an important question given the constraints that external imbalances impose on the design of macroeconomic policy.

Keywords

Price Elasticity Mean Absolute Percentage Error Trade Flow Bilateral Trade Income Elasticity 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Armington, P. (1969), “Adjustment of Trade Balances: Some Experiments with a Model of Trade among many Countries”, IMF Staff Papers, 27, pp.488–526.Google Scholar
  2. Bergsten, F. and W. Cline (1985), “The US-Japan Economic Problem”, Policy Analysis in International Economics, No.13, Institute for International Economics, Washington, D.C.Google Scholar
  3. Brown, B. and R. Mariano (1984), “Residual-Based Procedures for Prediction and Estimation in a Nonlinear Simultaneous Model”, Econometrica, 52, pp.321–43.CrossRefGoogle Scholar
  4. Bryant, R. and G. Holtham (1987), “The US External Deficit: Diagnosis, Prognosis, and Cure”, Brookings Discussion Papers No.55, The Brookings Institution, Washington, D.C.Google Scholar
  5. Chow, G. (1960), “Tests of Equality between Sets of Coefficients in Two Linear Regressions”, Econometrica, 28, pp.591–605.CrossRefGoogle Scholar
  6. Cline, W. (1984), International Debt, MIT Press, Cambridge.Google Scholar
  7. Cline, W. (1988), “Medium-Term Prospects for the US External Current Account”, Institute for International Economics, mimeo.Google Scholar
  8. Deardorff, A. and R. Stern (1986), “The Structure and Sample Results of the Michigan Computational Model of World Production and Trade”, in Srinivasan, T. and J. Whalley (eds.), General Equilibrium Trade Policy and Modeling, MIT Press, Cambridge.Google Scholar
  9. Deppler, M. and D. Ripley (1978), “The World Trade Model: Merchandise Trade”, IMF Staff Papers, 25, pp. 147–206.CrossRefGoogle Scholar
  10. Edison, H., J. Marquez, and R. Tryon (1986), “The Structure and Properties of the FRB MultiCountry Model”, International Finance Discussion Paper, No. 293, Federal Reserve Board, Washington, D.C.Google Scholar
  11. Eichengreen, B. (1987), “Trade Deficits in the Long Run”, Paper presented at the conference “The US Trade Deficit — Causes, Consequences, and Cures”, Federal Reserve Bank of St. Louis, October 23–24, 1987.Google Scholar
  12. Engle, R. (1982), “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation”, Econometrica, 50, 997–1008.CrossRefGoogle Scholar
  13. Engle, R., D. Hendry, and J. Richard (1983), “Exogeneity”, Econometrica, 51, 227–304.CrossRefGoogle Scholar
  14. Fair, R. (1986), “Evaluating the Predictive Accuracy of Models” in Z. Griliches and M. Intriligator (eds.), Handbook of Econometrics, vol. 3, North-Holland, Amsterdam.Google Scholar
  15. Feldstein, M. (1986), “Correcting World Trade Imbalances”, mimeo.Google Scholar
  16. Fretz, D., T. Srinivasan, and J. Whalley (1986), “Introduction”, in T. Srinivasan and J. Whalley (eds.), General Equilibrium Trade Policy Modeling, MIT Press, Cambridge.Google Scholar
  17. Gagnon, J. (1987), Adjustment Costs and International Trade Dynamic, Ph.D. dissertation, Stanford University.Google Scholar
  18. Goldstein, M. and M. Khan (1985), “Income and Price Elasticities in Foreign Trade” in R. Jones and P. Kenen (eds.) Handbook of International Trade, vol. 2, North-Holland, Amsterdam.Google Scholar
  19. Greenberg, E. and C. Webster (1983), Advanced Econometrics: A Bridge to the Literature, Wiley, New York.Google Scholar
  20. Haynes, S. and J. Stone (1983), “Secular and Cyclical Responses of US Trade to Income: An Evaluation of Traditional Models”, Review of Economics and Statistics, 65, pp.87–95.CrossRefGoogle Scholar
  21. Haynes, S., M. Hutchinson, and R. Mikesell (1986), “Japanese Financial Policies and the US Trade Deficit”, Essays in International Finance, No. 162, Princeton University.Google Scholar
  22. Helkie, W. and P. Hooper (1987), “The US External Deficit in the 1980s: An Empirical Analysis”, International Finance Discussion Papers, No. 304, Federal Reserve Board, Washington, D.C.Google Scholar
  23. Hickman, B. and L. Lau (1973), “Elasticities of Substitution and Export Demand in a World Trade Model”, European Economic Review, 4, pp.347–80.CrossRefGoogle Scholar
  24. Hooper, P. and C. Mann (1987), “The US External Deficit: Its Causes and Persistence”, International Finance Discussion Papers, No. 316, Federal Reserve Board, Washington, D.C.Google Scholar
  25. Hooper, P. (1988), “The Dollar, External Imbalances, and the US Economy”, Journal of Economic and Monetary Affairs, 2, pp.30–53.Google Scholar
  26. Houthakker, H. and S. Magee (1969), “Income and Price Elasticities in World Trade”, Review of Economics and Statistics, 51, pp.111–25.CrossRefGoogle Scholar
  27. Husted, S. and T. Kollintzas (1984), “Import Demand with Rational Expectations: Estimates for Bauxite, Cocoa, Coffee, and Petroleum”, Review of Economics and Statistics, 66, pp.608–18.CrossRefGoogle Scholar
  28. International Monetary Fund (1987), Direction of Trade, International Monetary Fund, Washington, D.C.Google Scholar
  29. Jarque, C. and A. Bera (1980), “Efficient Tests for Normality, Homoskedasticity, and Serial Independence of Regression Residuals”, Economic Letters, 6, pp.255–59.CrossRefGoogle Scholar
  30. Johnston, J. (1984), Econometric Methods, Third Edition, McGraw-Hill, New York.Google Scholar
  31. Khan, M. and K. Ross (1977), “The Functional Form of the Aggregate Import Equation”, Journal of International Economics, 7, pp.149–60.CrossRefGoogle Scholar
  32. Krinsky, I. and L. Robb (1986), “On Approximating the Statistical Properties of Elasticities”, Review of Economics and Statistics, 68, pp.715–19.CrossRefGoogle Scholar
  33. Krugman, P. and R. Baldwin (1987), “The Persistence of the US Trade Deficit”, Brookings Papers on Economic Activity, 1, pp.1–56.CrossRefGoogle Scholar
  34. McCarthy, M. (1972), “Some Notes on the Generation of Pseudo-Structural Errors for Use in Stochastic Simulation Studies” in B. Hickman (ed.), Econometric Methods of Cyclical Behavior, Columbia University Press, New York.Google Scholar
  35. Magee, S. (1975), “Prices, Income, and Foreign Trade” in P. Kenen (ed.), International Trade and Finance: Frontiers for Research, Cambridge University Press, Cambridge.Google Scholar
  36. Marquez, J. (1988), “Income and Price Elasticities of Foreign Trade Flows: Econometric Estimation and Analysis of the US Trade Deficit”, International Finance Discussion Papers, No. 324, Federal Reserve Board, Washington, D.C.Google Scholar
  37. Marris, S. (1987), “Deficits and the Dollar: The World Economy at Risk”, Policy Analyses in International Economics, No. 14, Institute for International Economics, Washington, D.C.Google Scholar
  38. Spencer, G. (1984), “The World Trade Model: Revised Estimates”, IMF Staff Papers, 31, pp.469–98.CrossRefGoogle Scholar
  39. Schwartz, N. and B. Krissoff (1987), “How Strategies to Reduce US Bilateral Trade Deficits in Manufactures Affect US Agricultural Exports”, US Department of Agriculture, Economic Research Service.Google Scholar
  40. Srinivasan, T. and J. Whalley (1986) (eds.), General Equilibrium Trade Policy Modeling, MIT Press, Cambridge.Google Scholar
  41. Thursby, J. and M. Thursby (1984), “How Reliable are Simple, Single Equation Specifications of Import Demand?”, Review of Economics and Statistics, 66, pp. 120–28.CrossRefGoogle Scholar
  42. Warner, D. and M. Kreinin (1983), “Determinants of International Trade Flows”, Review of Economics and Statistics, 65, pp.96–104.CrossRefGoogle Scholar
  43. Whalley, J. (1985), Trade Liberalisation Among Major World Trading Areas, MIT Press, Cambridge.Google Scholar

Copyright information

© Kluwer Academic Publishers 1989

Authors and Affiliations

  • Jaime Marquez
    • 1
  1. 1.Federal Reserve BoardUSA

Personalised recommendations