Doomed to Deficits? Aggregate U.S. Trade Flows Re-examined

Abstract

This paper examines the stability of import and export demand functions for the United States over the 1975q1-2001q2 period. Using the Johansen maximum likelihood approach, an export demand function is readily identified. In contrast, there appears to be a structural break in the import demand function in 1995; specifications incorporating this break pass tests for cointegration, although the price elasticity is not statistically significant. Only when excluding computers and parts from the import series is a stable import demand function detected. The resulting point estimates confirm the persistence of the income asymmetry first noted by Houthakker and Magee (1969), although in a slightly diminished form. One policy implication of these findings is that dollar depreciation --unaccompanied by a realignment of growth trends --is insufficient to substantially reduce the US trade deficit.

How Would an Appreciation of the Renminbi Affect the U.S. Trade Deficit with China?

“…Chinn (2005a) shows that these equations can be derived by equating import demand and export supply. Chinn (2005a) shows that these equations can be derived by equating import demand and export supply.…”

Supply Capacity, Vertical Specialization and Tariff Rates: The Implications for Aggregate U.S. Trade Flow Equations

“…Over the past 30 years, the gap is at least 0.3 for total goods and services, regardless of the method of estimation. In Chinn (2005), the gap is as high as 0.65. Table 1 presents estimates obtained from OLS, dynamic OLS, single equation error correction estimates and the Johansen maximum likelihood procedures.…”

“…are derived from an imperfect substitutes model, well suited to manufactured goods. However, oil is a natural resource commodity that does not quickly respond to market signals, and exhibits trends due to resource depletion.Moreover, sinceChinn (2005) findings of cointegration over the1975q1-2001q2 period are sensitive to the inclusion of computers, I also consider an aggregate excluding these two commodity classes.5 In this case(Column [3]), the income elasticity is barely altered: 2.22. Finally, a goods imports ex petroleum series (Column [5]) exhibits an even higher elasticity: 2.65.These results inform the debate over the durability of theHouthakker-Magee (1969) findings.…”

Productive Capacity, Product Varieties, and the Elasticities Approach to the Trade Balance

“…4 4 This result continues to hold in recent studies, such as Senhadji and Montenegro (1999) and Marquez (2002). However, Chinn (2005) finds no asymmetry after 1975 if computers are excluded from imports (but not from exports). …”