Estimating Income and Price Elasticities of Trade in a Cointegration Framework
Review of International Economics, Jan. 29, 1998
Posted: 27 Feb 1998
This paper presents some more evidence on the empirical regularity known as `45-degree rule'. We estimate income and price elasticities of trade for 21 countries in a cointegration framework. More specifically, we adopt the autoregressive distributed lag (ARDL) approach and the DOLS procedure to estimate the long-run structure. The empirical results confirm the existence of a systematic relationship between growth rates and income elasticity estimates: faster growing economies have high income elasticities of demand for their exports but lower import elasticities, which implies that faster growth can be observed without any marked secular trend in real exchange rates.
JEL Classification: C22, C32, F12
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