The Import Demand Equation with the Extensive Margin and an Empirical Analysis
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It is well-known that income elasticities in the standard import demand equation may be over-estimated because of the omission of new goods. Following this line of reasoning, this paper suggests an import demand equation that incorporates the extensive margin and then estimates the effect of new goods on income elasticities. This paper shows that income elasticities are upward biased by approximately 115% when the effects of new goods are not taken into account, using Korean export data. This paper proposes a new sophisticated import demand equation that is useful for estimating un-biased income elasticities.
Abstract
It is well-known that income elasticities in the standard import demand equation may be over-estimated because of the omission of new goods. Following this line of reasoning, this paper suggests an import demand equation that incorporates the extensive margin and then estimates the effect of new goods on income elasticities. This paper shows that income elasticities are upward biased by approximately 115% when the effects of new goods are not taken into account, using Korean export data. This paper proposes a new sophisticated import demand equation that is useful for estimating un-biased income elasticities.
참고문헌 (42)
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