Working Paper: NBER ID: w17712
Authors: Matthieu Bussire; Giovanni Callegari; Fabio Ghironi; Giulia Sestieri; Norihiko Yamano
Abstract: This paper introduces a new methodology for the estimation of demand trade elasticities based on an import intensity-adjusted measure of aggregate demand, with the foundation of a stylized theoretical model. We compute the import intensity of demand components by using the OECD Input-Output tables. We argue that the composition of demand plays a key role in trade dynamics because of the large movements in the most import-intensive categories of expenditure (especially investment, but also exports). We provide evidence in favor of these mechanisms for a panel of 18 OECD countries, paying particular attention to the 2008-09 Great Trade Collapse.
Keywords: trade elasticities; aggregate demand; import intensity; Great Trade Collapse
JEL Codes: F10; F15; F17; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fall in imports during recessions (F14) | exceeds fall in GDP (E20) |
| sharp reduction in most import-intensive components of aggregate demand (E20) | fall in imports (F14) |
| new import intensity-adjusted measure of aggregate demand (IAD) (E00) | improves estimation of trade elasticities (F14) |
| composition of demand influenced by economic crisis (D12) | drives import dynamics (C69) |
| elasticity of imports to aggregate demand using IAD (F14) | more stable (C62) |
| strong dependence of tradable sector on imported inputs (F14) | contributes to severity of trade collapse (F44) |
| demand crashed globally (F69) | particularly in its most import-intensive components (F12) |
| import intensity-adjusted measure of aggregate demand (E00) | accounts for varying import contents of different demand components (E20) |