Import Demand Elasticities Based on Quantity Data: Theory and Evidence

Shon Ferguson and Aaron Smith
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Aaron Smith: Department of Agricultural and Resource Economics,, Postal: University of California, Davis, USA

No 1296, Working Paper Series from Research Institute of Industrial Economics

Abstract: Correct estimates of import demand elasticities are essential for measuring the gains from trade and predicting the impact of trade policies. We show that estimates of import demand elasticities hinge critically on whether they are derived using trade quantities or trade values, and this difference is due to properties of the estimators. Using partial identification methods, we show theoretically that the upper bound on the set of plausible estimates is lower when using traded quantities, compared to the standard approach using trade values. Our theoretical predictions are confirmed using detailed product-level data on U.S. imports for the years 1993‒2006. Our proposed method using traded quantities leads to smaller point estimates of the import demand elasticities for many goods and imply larger gains from trade compared to estimates based on trade values.

Keywords: Model selection; Partial identication; Trade elasticity; Armington (search for similar items in EconPapers)
JEL-codes: C52 F10 F12 F14 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2019-08-05, Revised 2021-06-30
New Economics Papers: this item is included in nep-int and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1296

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