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Estimating Income and Price Elasticities of Trade in a Cointegration Framework
Author(s) -
Caporale Guglielmo Maria,
Chui Michael K. F.
Publication year - 1999
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00161
Subject(s) - economics , cointegration , distributed lag , econometrics , autoregressive model , income elasticity of demand , empirical evidence , macroeconomics , philosophy , epistemology
This paper presents further evidence on the empirical regularity known as the “45‐degree rule.” Income and price elasticities of trade are estimated for 21 countries in a cointegration framework. More specifically, the autoregressive distributed lag (ARDL) modeling approach and the DOLS procedure are adopted 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.