Working Paper: NBER ID: w23338
Authors: David Hummels; Kwan Yong Lee
Abstract: We construct a synthetic panel of household expenditures from the Consumer Expenditure Survey (CEX) and use the Quadratic Almost Ideal Demand System to estimate expenditure shares and income elasticities of demand that vary by good-income-time. We show that the size and distribution of income shocks drives expenditure change in a manner that varies profoundly across traded goods. Our estimates of expenditure shares and income elasticities could be useful in many applications that seek to explain changes in trade behavior from the demand side, and indicate the strong sensitivity of trade to changes in the tails of the income distribution. We explore an application involving the Great Trade Collapse. Income-induced expenditure changes are positively correlated with the cross-good pattern of import changes, generating a predicted change 40% as large as the raw variation in import declines.
Keywords: Income Elasticity; Import Demand; Household Expenditures; Trade Behavior; Economic Crises
JEL Codes: D12; D31; F10; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income shocks (D31) | Expenditure changes (H59) |
| Expenditure changes (H59) | Import demand (F10) |
| Income shocks (D31) | Changes in distribution of expenditures across goods categories (D12) |
| Changes in income distribution during economic crises (E25) | Variations in import demand (F14) |
| Income-induced expenditure changes (D12) | Import changes (O33) |
| Higher income households (R20) | Expenditure on traded goods (F19) |
| Top two deciles of income (D31) | Spending on traded goods (F10) |