The challenging estimation of trade elasticities: Tackling the inconclusive Eurozone evidence

Abstract

This paper sheds light on serious methodological difficulties of employing the empiric export equation in order to derive long-run trade elasticities. The unreliable estimated price coefficient (Kaldor Paradox) and the potential presence of cointegration are identified as the most relevant points. It can be shown that difficulties are in part due to methodological issues. New empirical evidence, encompassing eleven Euro area countries and the timespan 1995-2019, has been obtained from different cointegration techniques. In seven out of eleven cases a robust long-run relationship can be detected and price elasticity was consistently found being significant and negative.

What's the influence of input's variation? Estimating the input elasticity in the global value chain

“…This article also examines the substitution effect among homogenous input in the specific input demand system. In the East Asian and European RVCs, the homogenous input from the same RVC has negative substitution effect (Keil, 2023). Because the stable production linkage in these RVCs has formed up, regional competition might neither lead to the additional increment of input elasticity nor the additional output.…”

“…Finally, the input variation may de facto influence the input structure of each input demand system. There are abundant literatures that employ diverse notions to quantify the input variation, for instance, elasticity, robustness and resilience (Bang & Park, 2018; Bombarda & Marcassa, 2020; Keil, 2023). Previous scholars proved that the notion of input elasticity is a direct method to quantify the variation of one specific imported input relative to the aggregate input demand system (Egger et al., 2021; Timmer et al., 2021).…”

“…The increment of inter‐ and intra‐regional input elasticity in the North American RVC is not significantly correlated to the gross output. Last decade, countries in the North American RVC have no intentions to increase the value of input elasticity, because it could no longer bring additional output to them (Keil, 2023). Thus, countries in the North American RVC allocate more imported input for subsistence.…”