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Supply Capacity, Vertical Specialization and Tariff Rates: The Implications for Aggregate U.S. Trade Flow Equations

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  • Menzie D. Chinn

Abstract

This paper re-examines aggregate and disaggregate import and export demand functions for the United States. This re-examination is warranted because (1) income elasticities are too high to be warranted by standard theories, and (2) remain high even when it is assumed that supply factors are important. These findings suggest that the standard models omit important factors. An empirical investigation indicates that the rising importance of vertical specialization combined with decreasing tariffs rates explains some of results. Accounting for these factors yields more plausible estimates of income elasticities, as well as smaller prediction errors.

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  • Menzie D. Chinn, 2005. "Supply Capacity, Vertical Specialization and Tariff Rates: The Implications for Aggregate U.S. Trade Flow Equations," NBER Working Papers 11719, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11719
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    Cited by:

    1. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2010. "China's Current Account and Exchange Rate," NBER Chapters, in: China's Growing Role in World Trade, pages 231-271, National Bureau of Economic Research, Inc.
    2. Nicolas Berman & Antoine Berthou, 2009. "Financial Market Imperfections and the Impact of Exchange Rate Movements on Exports," Review of International Economics, Wiley Blackwell, vol. 17(1), pages 103-120, February.
    3. Jongwanich, Juthathip, 2009. "Equilibrium Real Exchange Rate, Misalignment, and Export Performance in Developing Asia," ADB Economics Working Paper Series 151, Asian Development Bank.
    4. Fakhri J. Hasanov & Muhammad Javid & Frederick L. Joutz, 2022. "Saudi Non-Oil Exports before and after COVID-19: Historical Impacts of Determinants and Scenario Analysis," Sustainability, MDPI, vol. 14(4), pages 1-38, February.
    5. Lian An & Xiaomei Ren & Huimin Li & Jing Xu, 2017. "Exchange Rate And Us Macroeconomy: Evidence From The Factor-Augmented Vector Autoregressive Model," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(02), pages 483-508, June.
    6. Menzie D. Chinn, 2012. "Imbalances, Overheating and the Prospects for Global Recovery," Chapters, in: Maurice Obstfeld & Dongchul Cho & Andrew Mason (ed.), Global Economic Crisis, chapter 6, Edward Elgar Publishing.
    7. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
    8. Kichun Kang, 2008. "The Sustainability of Korea's Trade Balances with China and Japan: Perspective from the Asymmetry in Income Elasticities," Korean Economic Review, Korean Economic Association, vol. 24, pages 173-197.
    9. Ines Buono & Filippo Vergara Caffarelli, 2013. "Trade elasticity and vertical specialisation," Temi di discussione (Economic working papers) 924, Bank of Italy, Economic Research and International Relations Area.
    10. Rahman, Mizanur, 2008. "The Impact of a Common Currency on East Asian Production Networks and China’s Exports Behavior," MPRA Paper 13931, University Library of Munich, Germany.
    11. Janet Ceglowski, 2017. "Unpacking services trade during the Great Trade Collapse: time series evidence for the US," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(3), pages 457-486, August.
    12. Holmes, Peter & Lopez-Gonzalez, Javier, 2011. "The Nature and Evolution of Vertical Specialisation: What is the Role of Preferential Trade Agreements?," Papers 222, World Trade Institute.
    13. Willem THORBECKE, 2022. "U.S. Trade Imbalances, East Asian Exchange Rates, and a New Plaza Accord," Discussion papers 22115, Research Institute of Economy, Trade and Industry (RIETI).

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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