Long-run elasticities for industrial countries, 1990-2012

Abstract

External imbalances are a threat for the global economy and disorderly adjustments as well as errors in forecasting the effects of policies can yield strongly negative outcomes. Focusing on export price elasticities, my main purpose is to provide an overall view of the previous research carried out on trade elasticity issues and to analyze the implications of global current account imbalances. Export price elasticities estimated in the previous literature feature a high variability with values ranging from -0.14 to -3.13. Some of these results can be considered controversial with respect to one side of the current debate and cause complexity in their interpretation. I have first applied a cointegration model in an error correction framework to estimate export elasticities covering the period from 1990 to 2012 for countries that represent both surplus and deficit sides of the current debate: Italy, Germany, France, USA, UK, Japan and China. Furthermore, I have used a non-stationary panel technique to take into account both inter-country differences and dynamic variations. Using these estimates, in combination with the prevalent macroeconomic forecasts related to the issue, I have illustrated how variations in exchange rates and incomes can produce effects on exports.