The Income Elasticity of Import Demand: Micro Evidence and An Application

David Hummels and Kwan Yong Lee

No 23338, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We construct a synthetic panel of household expenditures from the Consumer Expenditure Survey (CEX) and use the Quadratic Almost Ideal Demand System to estimate expenditure shares and income elasticities of demand that vary by good-income-time. We show that the size and distribution of income shocks drives expenditure change in a manner that varies profoundly across traded goods. Our estimates of expenditure shares and income elasticities could be useful in many applications that seek to explain changes in trade behavior from the demand side, and indicate the strong sensitivity of trade to changes in the tails of the income distribution. We explore an application involving the Great Trade Collapse. Income-induced expenditure changes are positively correlated with the cross-good pattern of import changes, generating a predicted change 40% as large as the raw variation in import declines.

JEL-codes: D12 D31 F10 F14 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-int
Note: ITI
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Citations: View citations in EconPapers (5)

Published as David Hummels & Kwan Yong Lee, 2018. "The Income Elasticity of Import Demand: Micro Evidence and An Application," Journal of International Economics, .

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Journal Article: The income elasticity of import demand: Micro evidence and an application (2018)
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