Jean Imbs, Isabelle Méjean
(European Economy. Economic Papers. 432. December 2010.
Brussels. PDF. 41pp. Tab. Graph. Bibliogr. Free.)
KC-AI-10-432-EN-N ISBN: 978-92-79-14918-4 ISSN: 1725-3195
In a demand system with conventional CES preferences, the price elasticitites of aggregate trade flows are weighted averages of sector-specific elasticities of substitution. We describe a methodology that can be used to estimate country-specific values for the price elasticities of aggregate imports and exports. We first use disaggregated trade data to compute structural estimates of international substitutability for a large cross section of countries. We aggregate up the estimates using model-implied, country-specific weights. We obtain structural estimates of the price elasticities of aggregate exports and imports for more than 30 countries, including most developed and developing economies.