Review of export elasticities - NZIER working paper 2011/4

Assumptions on export elasticities can have a big impact on CGE model results, especially at the industry level. Export elasticities measure the responsiveness of demand for a country’s exports to a change in the world price. The greater the elasticity, the greater the change in export demand following a price shift.  We find that the size of the export elasticities has an important impact on the magnitude of Computable General Equilibrium (CGE) modelling results.

We use CGE models to assess the impacts of shocks, such as a major policy change, on measures of welfare like real consumption or GDP. The export elasticity determines the amount of export revenue for a given change in export volumes. The change in revenue flows through the economy and influences measures of welfare like real consumption or GDP. The scale of the elasticities can have a material impact on these results. The results, in turn, influence whether a policy or event is thought to be ‘good’ or ‘bad’ for an economy. Understanding where these elasticities came from, how robust they are, and how they might be re-estimated is therefore important.

Each year NZIER devotes some of its resources to undertake and make freely available economic research and thinking aimed at promoting a better understanding of New Zealand’s important economic challenges. The preparation of this paper was funded from those resources.