Chapter

Understanding the U.S. Trade Deficit

Catherine L. Mann and Katharina Plück

in G7 Current Account Imbalances

Published by University of Chicago Press

Published in print May 2007 | ISBN: 9780226107264
Published online February 2013 | e-ISBN: 9780226107288 | DOI: http://dx.doi.org/10.7208/chicago/9780226107288.003.0008
Understanding the U.S. Trade Deficit

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This chapter reports new estimates for the elasticity of U.S. trade flows using bilateral, commodity-detailed trade data for thirty-one countries, using measures of expenditure and trade prices matched to commodity groups and including a commodity-and-country specific proxy for global supply-cum-variety. It is found that industrial and developing countries have different demand and relative price elasticities for the four commodity categories. Also, it illustrates that variety is a significant variable for the behavior of capital goods trade. Matched expenditure, matched prices, and variety play a key role in decreasing the asymmetry of estimated elasticities of trade with respect to economic activity. Short-run estimates of U.S. consumer goods imports with respect to matched economic activity exhibit very high cyclical elasticity. There are differences in demand elasticities for consumer goods and for other product categories.

Keywords: elasticity; U.S. trade flows; expenditure; trade prices; commodity; capital goods; consumer goods

Chapter.  14250 words.  Illustrated.

Subjects: Financial Markets

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