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Trade Policy and the Marshall–Lerner Condition: Application of the Tobit Model

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  • Masuda, Kazuto

    (Bank of Japan)

Abstract

This paper establishes the micro-foundation for the income-price approach to export and import functions from the firm’s profit maximization problem. Following Boyd et al. (2000), we derive the Marshall–Lerner condition mathematically and analyze the effects of home and foreign trade policies, such as the minimum access and quantitative trade restriction, on the Marshall–Lerner condition. In conclusion, such trade policies make the condition theoretically difficult to hold since the marginal effects of the Tobit estimates under deterministic trade policies are always lower than the ordinary least squares (OLS) estimates under no trade policies in absolute values.

Suggested Citation

  • Masuda, Kazuto, 2021. "Trade Policy and the Marshall–Lerner Condition: Application of the Tobit Model," SocArXiv njzk3, Center for Open Science.
    • Handle: RePEc:osf:socarx:njzk3
    DOI: 10.31219/osf.io/njzk3
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    References listed on IDEAS

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    1. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492, National Bureau of Economic Research, Inc.
    2. X. L. Wu, 1992. "A Comparison Of Tobit And Ols Estimates Of Japanese Peanut Import Demand," Journal of Agricultural Economics, Wiley Blackwell, vol. 43(1), pages 38-42, January.
    3. Fontagné, Lionel & Martin, Philippe & Orefice, Gianluca, 2018. "The international elasticity puzzle is worse than you think," Journal of International Economics, Elsevier, vol. 115(C), pages 115-129.
    4. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
    5. repec:fip:fedgin:2016-02-08 is not listed on IDEAS
    6. Bunch, David S., 1988. "A comparison of algorithms for maximum likelihood estimation of choice models," Journal of Econometrics, Elsevier, vol. 38(1-2), pages 145-167.
    7. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    8. Atanu Saha & Oral Capps & Patrick Byrne, 1997. "Calculating marginal effects in models for zero expenditures in household budgets using a Heckman-type correction," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1311-1316.
    9. Joseph W. Gruber & Andrew H. McCallum & Robert J. Vigfusson, 2016. "The Dollar in the U.S. International Transactions (USIT) Model," IFDP Notes 2016-02-08-2, Board of Governors of the Federal Reserve System (U.S.).
    10. Clarida, Richard H, 1994. "Cointegration, Aggregate Consumption, and the Demand for Imports: A Structural Econometric Investigation," American Economic Review, American Economic Association, vol. 84(1), pages 298-308, March.
    11. Boyd, Derick & Caporale, Gugielmo Maria & Smith, Ron, 2001. "Real Exchange Rate Effects on the Balance of Trade: Cointegration and the Marshall-Lerner Condition," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 187-200, July.
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    13. Fair, Ray C, 1977. "A Note on the Computation of the Tobit Estimator," Econometrica, Econometric Society, vol. 45(7), pages 1723-1727, October.
    14. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
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    Cited by:

    1. Han Liu & Heng Liu & Leihua Geng, 2024. "Analysis of Industrial Water Use Efficiency Based on SFA–Tobit Panel Model in China," Sustainability, MDPI, vol. 16(19), pages 1-12, October.

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