World Trade and Global Integration in Production Processes: A Re-Assessment of Import Demand Equations

38 Pages Posted: 29 Jul 2005

See all articles by Ray Barrell

Ray Barrell

National Institute of Economic and Social Research (NIESR)

Stephane Dees

European Central Bank (ECB)

Date Written: July 2005

Abstract

It is common to observe that demand elasticities in trade equations for imports are implausibly large, and that they differ between countries. Both of these present us with problems, as they imply trade will rise without bound as a proportion of GDP. The research reported here looks for alternative empirical evidence of possible factors driving the increase in trade as a proportion of GDP. We show that the inclusion of the ratios of outward and inward FDI to GDP as additional openness and globalisation indicators appear to remove the spurious accuracy with which we are measuring demand elasticities.

Keywords: International trade, FDI

JEL Classification: F10, F23

Suggested Citation

Barrell, Ray and Dees, Stephane, World Trade and Global Integration in Production Processes: A Re-Assessment of Import Demand Equations (July 2005). ECB Working Paper No. 503, Available at SSRN: https://ssrn.com/abstract=750764 or http://dx.doi.org/10.2139/ssrn.750764

Ray Barrell

National Institute of Economic and Social Research (NIESR) ( email )

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom
0171 222 7665 (Phone)
0171 654 1900 (Fax)

Stephane Dees (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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