Marquez: Bilateral Trade Elasticities

J Marquez, “Bilateral Trade Elasticities,” Review of Economics and Statistics 72, no. 1 (1990): 70-77.

"This paper estimates income and price elasticities for bilateral world trade....The paper finds that bilateral trade elasticities exhibit enough of a dispersion to suggest that the direction of trade is sensitive to changes in income and prices" (70).

The findings of this article are the following: bilateral trade elasticities differ quite a bit from one relationship to another. "Out of 56 elasticity estimates, 8 are negative, 25 vary between 0.1 and 2.0, and 23 are greater than 2" (72). Additionally, countries can be grouped as to whether they tend to have low income elasticities or high elasticities: "The 'low' income elasticity countries are Japan and LDCs; the 'high' income elasticity countries are Canada, Germany, the United Kingdom, the United States and other industrialized countries; the income elasticities for OPEC's bilateral imports are near unity" (72). Thirdly, import elasticities stemming from OPEC countries are near zero, as they mainly compromise oil.

"Using bilateral trade shares as weights, table 2 estimates the multilateral elasticities implied by the bilateral estimates of table 1. Based on a comparison to previous estimates...the aggregate income elasticities are consistent with the literature...The estimated price elasticities are also consistent with the literature: they are negative, range between -0.5 and -1.1, and are statistically significant" (74).