Working Paper

Estimating elasticities for U.S. trade in services

Abstract: Explanations of the persistent deficit in U.S. net exports of goods rest on macroeconomic developments and an asymmetry in elasticities: the income elasticity for imports being larger than the income elasticity for exports. Such macroeconomic developments are not applicable to the equally persistent surplus in U.S. net exports of services unless the income elasticities for services exhibit the reversed asymmetry. There have been surprisingly few attempts to demonstrate the existence of this reversed asymmetry, a task that I undertake here. Specifically, I estimate income and price elasticities for U.S. trade in services and evaluate the importance of simultaneity and aggregation biases. The analysis reveals two findings. First, the income elasticity for U.S. exports of services is significantly greater than the income elasticity for U.S. imports of services. Second, disaggregation is the most important aspect of econometric design in this area.

Keywords: International trade - Econometric models; Elasticity (Economics);

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2005

Number: 836