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

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Abstract

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

Zusammenfassung

Variablenfehler, Wirkungen der Angebotsseite und Preiselastizitäten im Außenhandel.—Frühere Schätzungen von Preiselastizitäten im Außenhandel sind wahrscheinlich nach oben verzerrt aufgrund von Variablenfehlern, der Vernachlässigung von Einflüssen der Angebotsseite, der Aggregation, der schlechten Messung der preislichen Wettbewerbsfähigkeit und der fehlerhaften Spezifizierung der Schätzgleichungen. Der Verfasser fügt die Angebotsseite in die traditionelle Gleichung der Exportnachfrage ein und verwendet einen Paneldaten-Ansatz für die verarbeitende Industrie in der OECD, um unverzerrte Schätzungen von Preiselastizitäten zu ermitteln. Die Schätzungen ergeben, daß die Summe der absoluten Import- und Exportpreiselastizitäten nahe eins liegt und daß sich Währungsabwertungen wegen der Einflüsse der Angebotsseite wahrscheinlich langfristig auf die Handelsbilanzen nachteilig auswirken.

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  1. Jakob B. Madsen
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Remark: Comments and suggestions from participants at seminars at University of Southampton, University of Adelaide and University of Western Australia, and particularly of an anonymous referee, are gratefully acknowledged. Paula Madsen and Wana Yang provided excellent research assistance.

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Madsen, J.B. Errors-in-variables, supply side effects, and price elasticities in foreign trade. Weltwirtschaftliches Archiv 134, 612–637 (1998). https://doi.org/10.1007/BF02773290

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