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A re-assessment of German import demand

Author

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  • Sabine Stephan

    (IMK at the Hans Boeckler Foundation)

Abstract

Empirical studies analysing German import demand functions traditionally report implausibly high income and relativly low price elasticities. Furthermore, estimation results strongly depend on the observation period. Minor variations in the estimation period typically lead to insignificant price terms often displaying the wrong sign. Based on an extensive econometric analysis, the author shows that these problems are caused by the use of highly aggregated activity variables (GDP or total demand). The problem is easily solved if GDP components, namely exports and investment, are used to model domestic economic activity. We find that imports, exports, investment, and a relative import price form highly stable cointegration relationships. The corresponding activity elasticity is clearly below 1 and the price elasticity is highly significant. Changes in the estimation period neither change the impact nor the significance of the determinants of imports.

Suggested Citation

  • Sabine Stephan, 2007. "A re-assessment of German import demand," IMK Working Paper 08-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:08-2007
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    File URL: http://www.boeckler.de/pdf/p_imk_wp_08_2007.pdf
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    References listed on IDEAS

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    2. Morris Goldstein & Mohsin S. Khan, 2017. "Income and Price Effects in Foreign Trade," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 1, pages 3-81, World Scientific Publishing Co. Pte. Ltd..
    3. Ray Barrell & Dirk Willem te Velde, 2002. "European Integration and Manufactures Import Demand: An Empirical Investigation of Ten European Countries," German Economic Review, Verein für Socialpolitik, vol. 3(3), pages 263-293, August.
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    5. Abdelhak Senhadji, 1998. "Time-Series Estimation of Structural Import Demand Equations: A Cross-Country Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 236-268, June.
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    11. Barrell, Ray & Dées, Stéphane, 2005. "World trade and global integration in production processes: a re-assessment of import demand equations," Working Paper Series 503, European Central Bank.
    12. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-1056, September.
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    Cited by:

    1. Heike Joebges & Evelyn Herrmann, 2008. "Euro area exports and imports: Do determinants of intra- and extra-EMU trade differ?," IMK Working Paper 08-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Engelbert Stockhammer & Eckhard Hein & Lucas Grafl, 2011. "Globalization and the effects of changes in functional income distribution on aggregate demand in Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 1-23.
    3. Projektgruppe Gemeinschaftsdiagnose, 2011. "Gemeinschaftsdiagnose Frühjahr 2011: Aufschwung setzt sich fort - Europäische Schuldenkrise noch ungelöst," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(08), pages 03-63, April.
    4. Kristian Orsini, 2017. "What Drives Croatia's High Import Dependence?," European Economy - Economic Briefs 029, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

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    More about this item

    Keywords

    German import demand equation; price elasticity; income elasticity; activity elasticity; aggregation problems; error correction model;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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