Estimation of Elasticities and Interpretation of Results
Estimates of the response of imports and exports to price changes are interesting and important for a variety of purposes. On an aggregate level, the investigator or policy maker may wish to know what effects exchange-rate realignments may have on the trade balances of different countries. Or, put differently, the problem may be to determine the exchange-rate change required to eliminate a trade imbalance of a given size. Exchange-rate changes will also affect aggregate income and employment as a consequence of the expenditure shifts that occur and that result in the expansion or contraction of a country’s export and import-competing industries. To cope with issues like these, information on the relevant elasticities of demand and supply is necessary.
KeywordsPrice Change Demand Function Price Elasticity Trade Balance Income Elasticity
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Notes and References
- 1.For a derivation and illustration of the relationship between the domestic and foreign trade elasticities, see Robert M. Stern, The Balance of Payments ( Chicago: Aldine, 1973 ), pp. 62–4.Google Scholar
- For studies in which the relationship has been used, see B. Balassa and M. E. Kreinin, ‘Trade Liberalisation under the ‘Kennedy Round’: The Static Effects’, Review of Economics and Statistics, Vol. XLIX (May 1967).Google Scholar
- A. G. Blomqvist and Walter Haessel, ‘The Price Elasticity of Demand for Ghana’s Cocoa: Some Estimates and Policy Implications’, Economic Bulletin of Ghana, Vol. 2 (No. 3, 1972 ).Google Scholar
- J. Neill Fortune, ‘Measures of Tariff Elasticities’, Applied Economics, Vol. 3 (March 1971), and Mordechai Kreinin, ‘Price Elasticities in International Trade’, Review of Economics and Statistics, Vol. XLIX (November 1967). Google Scholar