The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper uses bilateral data on 420 merchandise trade flows between 21 industrial countries are used to estimate standard trade equations. The data set of over 11,000 observations allows the underlying elasticities to be estimated with considerable precision. Remarkably, a single specification appears to explain behavior across these countries in spite of the large number of individual flows analyzed. The results indicate a powerful long-run effect from supply on exports. Also, the real exchange rate elasticity depends upon the behavior of third country exchange rates. There is evidence of pricing to market and of a J-curve.