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World trade suddenly plummeted in the last quarter of 2008 after the bankruptcy of Lehman brothers and the subsequent meltdown in financial markets. Even if the following recovery was impressive, trade growth is now noticeably below trend. The anaemic momentum in global export volume questionswhether the financial crisis has permanently changed the trade landscape. In this paper, we address trade elasticities in some Central and Eastern European economies by estimating a standard import function equation. We employ a dynamic panel Auto Regressive Distributed Lagmodel with the Common Correlated EffectsMean Group estimator to cope with cross-sectional dependence. Themodel is fit on a sample of eight countries over the period 1995:q1-2017:q1. First, we estimate long-run import elasticities with respect to GDP and the relative import price. Then, we discriminate between booms and slowdowns. Results confirm imports respond differently over the business cycle.
Key Words:World trade collapse, trade elasticities, CEECS, CCEMG
JEL Classification: f14, f41, d57, g01
https://doi.org/10.26493/1854-6935.16.3-18
(ProQuest: ... denotes formulae omitted.)
Introduction
After the fall of the iron curtain, practitioners started to quantify the trade potentials between the European and the Central and Eastern European Countries (CEECS). Scholars put considerable efforts to assess endowments in the periphery and the ability of CEECS to catch up with more advanced economies (Hamilton and Winters 1992; Wang and Winters 1992; Baldwin 1995). Yet, these early works and following contributions focus mostly on the export side. Since then, little effort has been placed on the import side, exception made for a few scattered works on single countries (Benácek, Prokop, and Višek, 2003; Mroczek and Rubazek 2004; Benk et al. 2006) and panels (Reininger 2007).Our aimis to fill this gapanalysing thebehaviour of importswitha sampleof eight CEECS (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia).
We also address the impact of the great recession and the European debt crisis, as we provide estimates on import elasticities during the period 1995-2017,whilst distinguishing between expansions and slowdowns inthe business cycle. Our research objective is to supply a tentative explanation on the interplay between import and price sensitiveness to GDP during tranquil times and recessions for the aforementioned countries. This is essential to get a better understanding on CEECS' trade response to the 2008-2009 financial turmoil and the following European sovereign...