Income and Price Effects in Foreign Trade

Abstract

for helpful comments on an earlier draft. 1 The availability of trade data was surely a contributing factor to the advanced nature of the early empirical work on trade models. It is sufficient to note that by 1957 there already existed, inter alia: (i) at least 42 books and articles containing estimates of income and price elasticities for imports and exports [see Cheng's (1959) survey]; (ii) several superb methodological criticisms [Orcutt (1950), Harberger (1953)] that explained why estimated price elasticities could differ from the true elasticities; and (iii) at least one complete simultaneous model of import demand and supply [Morgan and Corlett (1951)], actually estimated by limited-information maximum likelihood methods, that displays the authors' awareness of many of the methodological issues that still entertain current research.

Trade Openness and Disaggregated Import Demand in East African Countries

“…Therefore, from this study we expect that the relative import prices is negatively related to import demand. However contrary to studies by [7], [8] proposes that as economic development proceeds, the price elasticity of import demand also rises implying that import demand is positively related to relative import price. Further analysis should be undertaken to understand the behaviour of disaggregated import elasticities using sector specific data.…”

“…In this case, one may expect imports to fall in the face of an increase in income which means that the relationship between volume of imports and income may be either negative or positive [10]. In the same way, according to [8] studying the influence of trade openness on Venezuela's import performance, they suggest that trade openness can directly affects income and price elasticities i.e., as the degree of import openness increases, the income elasticity of demand increases. That is, the relaxation of controls will tend to increase the income elasticity automatically.…”

On the Suitability of Alternative Competitiveness Indicators for Explaining Real Exports of Advanced Economies

“…In the seminal study by Goldstein and Khan (1985), real exports are modelled as being dependent on their relative price and on a measure of foreign real activity. Several recent studies investigate, however, whether additional explanatory variables should be added in an augmented export equation or whether such variables may affect estimates of the price or income elasticities.…”

“…First, we present the export demand equation which emerges from the theoretical model by Goldstein and Khan (1985) in order to provide a framework for the econometric analysis. We then describe the data and present the results of a simple correlation analysis of the various competitiveness indicators to check whether the conceptual differences described above also show up empirically.…”

“…We then describe the data and present the results of a simple correlation analysis of the various competitiveness indicators to check whether the conceptual differences described above also show up empirically. Goldstein and Khan (1985) specify the function of real export demand X contingent on three nominal variables: the domestic export price index P x , the foreign price index expressed in domestic currency P * /S, and nominal foreign income expressed in domestic currency Y ′ * /S, where S denotes the nominal exchange rate in units of the foreign currency for each unit of domestic currency (indirect quotation). Assuming this original function is homogeneous of degree zero, real export demand can also be written as being determined by function g as…”