The challenging estimation of trade elasticities: Tackling the inconclusive Eurozone evidence

Sascha Keil

The World Economy, 2023, vol. 46, issue 5, 1235-1263

Abstract: This paper sheds light on serious methodological difficulties of employing the empiric export equation in order to derive long‐run trade elasticities. The unreliable estimated price coefficient (Kaldor paradox) and the potential presence of cointegration are identified as the most relevant points. It can be shown that difficulties are in part due to methodological issues. New empirical evidence, encompassing 11 Euro area countries and the timespan 1995–2021, has been obtained from different cointegration techniques. In almost all cases, a robust long‐run relationship was detected. Price competitiveness was consistently found to be a decisive determinant of European trade flows.

Date: 2023
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