Import demand in heterogeneous panel data with cross-sectional dependence

We investigate the long-run income and price elasticity of import demand functions with a heterogeneous unbalanced panel of 34 countries over the period 1985:q1-2018:q3. To estimate world elasticities the model is tested with the activity variables derived from the theoretical and empirical literatu...

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Vydáno v:Applied economics Ročník 52; číslo 5; s. 443 - 458
Hlavní autoři: Gregori, Tullio, Giansoldati, Marco
Médium: Journal Article
Jazyk:angličtina
Vydáno: London Routledge 26.01.2020
Taylor & Francis Ltd
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ISSN:0003-6846, 1466-4283
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Abstract We investigate the long-run income and price elasticity of import demand functions with a heterogeneous unbalanced panel of 34 countries over the period 1985:q1-2018:q3. To estimate world elasticities the model is tested with the activity variables derived from the theoretical and empirical literature: GDP, GDP minus exports, Private Demand, Aggregate Domestic Demand, National Cash Flow, and Import intensity-Adjusted Demand (IAD). First, we evaluate time series properties using second generation panel unit root and cointegration tests. Second, we rely on the dynamic common correlated effects mean groups (CCEMG) estimator to deal with cross-sectional dependence (CSD). We find that the IAD, whose world elasticity is close to one, is the best performing specification. Our results confirm that the most appropriate activity variable to assess import demand should encompass intermediate goods as suggested by the recent literature on global supply chains. Moreover, we partially solve the puzzle of the recent trade slowdown since, taking stock of the role of intermediates, the time needed to resort to the long run equilibrium in the aftermath of a global turmoil is greater than that predicted by previous studies.
AbstractList We investigate the long-run income and price elasticity of import demand functions with a heterogeneous unbalanced panel of 34 countries over the period 1985:q1-2018:q3. To estimate world elasticities the model is tested with the activity variables derived from the theoretical and empirical literature: GDP, GDP minus exports, Private Demand, Aggregate Domestic Demand, National Cash Flow, and Import intensity-Adjusted Demand (IAD). First, we evaluate time series properties using second generation panel unit root and cointegration tests. Second, we rely on the dynamic common correlated effects mean groups (CCEMG) estimator to deal with cross-sectional dependence (CSD). We find that the IAD, whose world elasticity is close to one, is the best performing specification. Our results confirm that the most appropriate activity variable to assess import demand should encompass intermediate goods as suggested by the recent literature on global supply chains. Moreover, we partially solve the puzzle of the recent trade slowdown since, taking stock of the role of intermediates, the time needed to resort to the long run equilibrium in the aftermath of a global turmoil is greater than that predicted by previous studies.
Author Giansoldati, Marco
Gregori, Tullio
Author_xml – sequence: 1
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  surname: Gregori
  fullname: Gregori, Tullio
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Snippet We investigate the long-run income and price elasticity of import demand functions with a heterogeneous unbalanced panel of 34 countries over the period...
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SubjectTerms Aftermath
Cash flow
CCEMG
Cointegration analysis
Economic analysis
Economic models
Economic theory
Exports
F69; C33; C52
GDP
Gross Domestic Product
Heterogeneity
IAD
import income elasticity
import price elasticity
Imports
Income
International trade
Literature
Longitudinal studies
Panel data
Price elasticity
Property
Purchasing power parity
Second generation
Specification
Supply
Time series
World import function
Title Import demand in heterogeneous panel data with cross-sectional dependence
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