Income and Price Elasticities of Croatian Trade A Panel Data Approach by Vida Bobic

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Income and Price Elasticities of Croatian Trade
A Panel Data Approachby Vida Bobic
The Fifteenth Dubrovnik Economic
Conference Organized by the Croatian National
Bank

• Discussant K. Zigic CERGE-EI Prague, Czech
  Republic

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Summary of the Paper

• Objective
• analysis of factors determining Croatian
  merchandise trade
• Motivation large trade deficits of Croatia
• Methodology
• Panel data for 2000-2007, sectoral level (30 NCEA
  sectors)
• Models with lagged explained variable estimated
  by Arellano Bond (1991) methodology
• Domestic and foreign commodities treated as
  imperfect substitutes
• Independent estimates of export and import
  function
• Imports assumed to depend on domestic GDP, import
  price, tariffs, exchange rate
• Exports function of world GDP, export price, and
  exchange rate
• Croatia treated as a small country

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Comments (1) Motivation

• Page 1
• current account deficit. This deficit is, in
  turn, for the most part a consequence of a large
  deficit in merchandise trade
• Small conceptual objection
• Deep current account deficits are mostly results
  of deeper macroeconomic disequilibria
• While Croatia indeed has deep trade deficit, the
  current account deficit is lower thanks to
  services account

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Current Accounts of Selected New EU Members of
GDP
Source World Development Indicators
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Comments (2) Econometric Methodology

• Page 9, equation 2 demonstration of Arellano
  Bond framework
• Shouldnt the equation include ?xit instead of
  xit ?
• Could Blundell Bond (1998) further improve the
  methodology?

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Comments (3a) Variables

• Tariffs omitted from export equation because
• The very large number of countries to which
  goods are being exported and the resulting
  equally large number of different tariffs being
  applied to those exports makes the construction
  of a single tariff indicator very difficult
• But EU accounts for about 60 of Croatian
  exports and it has common tariff schedule
• How about using the EU common tariff as proxy?

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Comments (3b) Variables

• Tariff measure used in the import equation is
  derived as tariff revenues / total value of
  imports
• Problem interaction between tariff rate and
  volume of imports, higher protection does not
  always mean higher revenue from the tariff
• Possible solution
• Simple non-weighted average tariffs are often
  used in trade literature (they are imperfect too,
  but may lead to less biased results in the
  presence of highly protected sectors)

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Conclusion

• Author met the main objective (estimation of
  income and price elasticities)
• Estimates are made with the use of more reliable
  methodology than many previous applied papers
  (simple fixed effects or OLS are not uncommon)
• Results seem to be in line with both previous
  estimates and expectations. However, look more
  into the issue of quality upgrading

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References

• Arellano, M., Bond, S. (1991). Some tests of
  specification for panel data Monte Carlo
  evidence and application to employment equations.
  Review of Economic Studies, 58, 227297.
• Blundell, R. W., Bond, S. R. (1998). Initial
  conditions and moment restrictions in dynamic
  panel data model. Journal of Econometrics, 87,
  115143.
• World Bank World Development Indicators