OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
Price and Volume Elasticities of Brazilian Foreign Trade
A Profit Function Approach
Brazil, like other natural resource-exporting countries, has benefited from a sharp increase in
commodity prices over the last few years. To investigate the possible impact of terms-of-trade gains on the
real economy, this paper estimates normalised quadratic input demand and output supply functions for the
Brazilian economy during 1997-2008. Technological change is modelled in a flexible manner through the
inclusion of quadratic splines in the profit function. The paper contributes to the literature by using
nonlinear seemingly unrelated regression techniques to estimate the input demand and output supply
functions and by disaggregating exports and imports into capital, consumption and intermediate goods.
Improvements in the terms of trade due to rising export prices and/or falling import prices are associated
with hikes in export volumes on the back of rising import demand and some labour shedding in the sectors
using imported capital goods. The direct impact of terms-of-trade changes on domestic consumption and
investment is comparatively modest, possibly due to the fact that the Brazilian economy remains relatively
closed to trade.
Keywords: terms of trade, seemingly unrelated regression, profit function, NQQS
JEL:
F43: International Economics / Macroeconomic Aspects of International Trade and Finance / Economic Growth of Open Economies;
F14: International Economics / Trade / Empirical Studies of Trade;
F10: International Economics / Trade / Trade: General
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