Mr. Liu, economist in the Special Studies Division of the Research Department, is a graduate of National Chiao-Tung University, and received graduate training at Cornell University. He was formerly Assistant Commercial Counselor, Chinese Embassy, Washington, D.C., and Professor of Economics, National Tsing-Hua University, Peiping. He is the author of National Income of China, 1931-36 (The Brookings Institution, 1946) and of several articles in economic journals.
Positive empirical contributions to the subject have been made by John H. Adler, Eugene R. Schlesinger, and Evelyn van Westerborg in The Pattern of United States Import Trade Since 1923: Some New Index Series and Their Application (Federal Reserve Bank of New York, May 1952); and by Arnold C. Harberger in “A Structural Approach to the Problem of Import Demand”, American Economic Association, Papers and Proceedings of the Sixty-Fifth Annual Meeting (American Economic Review, Vol. XLIII, May 1953), pp. 148-66. The section on Empirical Findings in the present paper deals with one of the results of the study by Adler, Schlesinger, and van Westerborg.
Guy H. Orcutt, “Measurement of Price Elasticities in International Trade”, The Review of Economics and Statistics, Vol. XXXII (1950), pp. 117-32.
Professor Arnold C. Harberger has made a more comprehensive examination of the aggregation problem in an unpublished paper, “Index Number Problems in Measuring the Elasticity of Demand for Imports”. A review of his paper is found in Fritz Machlup’s article, “Elasticity Pessimism in International Trade”, Economia Internazionale, Vol. Ill (1950), pp. 118-41.
D. J. Morgan and W. J. Corlett, “The Influence of Price in International Trade: A Study in Method”, Journal of the Royal Statistical Society, Series A, Vol. CXIV, Part III (1951), pp. 307-58.
In contrast with most raw materials and foodstuffs.
Adler, Schlesinger, and van Westerborg (op. cit., p. 41) have also defended the least squares estimates of demand for imports of finished manufactures. They believe that “… there are certain instances where supply and demand changes are sufficiently independent of each other to enable the investigator to assume that a downward bias of the Orcutt type is operationally unimportant.” No explanation, however, is given by them as to why and in what way the shifts in the demand and the supply curves are independent. Later on the same page they point out that “… the supply for the American market can be considered as almost perfectly elastic … Perfectly elastic supply and independent shifts are, however, quite different things. A least squares estimate would still be biased if the perfectly elastic supply curve shifts in the same direction as the demand curve.
The simple correlation coefficients of Px with Pw and Pcl are, respectively, 0.982 and 0.985. The correlation coefficient between the quantity and the price of exports is 0.43.
The “kinked” demand curves would result in a discontinuous marginal revenue curve. Hence, in spite of a shift of the demand curve, price may remain constant. See R. L. Hall and C. J. Hitch, “Price Theory and Business Behaviour”, Oxford Economic Papers, No. 2 (1939), pp. 12-45.
Adler, Schlesinger, and van Westerborg have also given the smallness of the ratio of exports to aggregate home production as the reason for the perfectly elastic supply of exports. See footnote 6.
Fritz Machlup, op. citp. 130.
See pp. 429-33, below, for an empirical study of this problem.
In terms of the Cowles Commission terminology,
Op. cit., pp. 48-49.
The standard errors of the regression coefficients have been computed on the basis of data kindly provided by the authors, and are given in parentheses under the respective regression coefficients.
Adler, Schlesinger, and van Westerborg, op. cit., p. 48.
For a linear equation, such as equation (12), the “average” elasticity is not very instructive. See pp. 433 and 434, below.
As explained on p. 428, above, Pm is after adjustment for duty payments. Since the data for 1949-51 provided by Adler, Schlesinger, and van Westerborg are before duty adjustments, an approximation to figures after adjustment for duty payments was obtained for those years on the basis of the ratio of before-and-after duty figures for 1948.
The sign ͠ indicates that the square term
This is quite doubtful, as exports to the United States are merely a rather small part of total exports and a still smaller portion of the total output of finished manufactures in the ERP countries, which were quite anxious to earn dollars by shifting supply from other purchasers to U. S. buyers.