Estimating Income and Price Elasticities of Trade in a Cointegration Framework

Review of International Economics, Jan. 29, 1998

Posted: 27 Feb 1998

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Michael K.F. Chui

Bank for International Settlements (BIS)

Abstract

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

Suggested Citation

Caporale, Guglielmo Maria and Chui, Michael K.F., Estimating Income and Price Elasticities of Trade in a Cointegration Framework. Review of International Economics, Jan. 29, 1998, Available at SSRN: https://ssrn.com/abstract=62849

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Germany

German Institute for Economic Research (DIW Berlin) ( email )

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Germany

Michael K.F. Chui

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

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