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  • P-ISSN 1738-656X

한국개발연구. Vol. 12, No. 4, December 1990, pp. 47-69

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An Estimation of Price Elasticities of Import Demand and Export Supply Functions Derived from an Integrated Production Model (Written in Korean)


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Using an aggregator model, we look into the possibilities for substitution between Korea's exports, imports domestic sales and domestic inputs (particularly labor), and substitution between disaggregated export and import components. Our approach heavily draws on an economy-wide GNP function that is similar to Samuelson’s, modeling trade functions as derived from an integrated production system. Under the condition of homotheticity and weak separability, the GNP function would facilitate consistent aggregation that retains certain properties of the production structure. It would also be useful for a two-stage optimization process that enables us to obtain not only the net output price elasticities of the first-level aggregator functions、but also those of the second-level individual components of exports and imports. For the implementation of the model, we apply the Symmetric Generalized McFad-den (SGM) function developed by Diewert and Wales to both stages of estimation. The first stage of the estimation procedure is to estimate the unit quantity equations of the second-level exports and imports that comprise four components each. The parameter estimates obtained in the first stage are utilized in the derivation of instrumental variables for the aggregate export and import prices being employed in the upper model. In the second stage, the net output supply equations derived from the GNP function are used in the estimation of the price elasticities of the first-level variables: exports, imports, domestic sales and labor. With these estimates in hand, we can come up with various elasticities of both the net output supply functions and the individual components of exports and imports. At the aggregate level (first-level), exports appear to be substitutable with domestic sales, while labor is complementary with imports. An increase in the price of exports would reduce the amount of the domestic sales supply, and a decrease in the wage rate would boost the demand for imports. On the other hand, labor and imports are com­plementary with exports and domestic sales in the input-output structure. At the disag­gregate level (second-level), the price elasticities of the export and import components obtained indicate that both substitution and complement possibilities exist between them. Although these elasticities are interesting in their own right, they would be more useful­ly applied as inputs to the computational general equilibrium model.

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