No. 776 - Measuring the price elasticity of import demand in the destination markets of Italian exports

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by Alberto Felettigh and Stefano Federico October 2010

The aim of this paper is to compare the price elasticity of import demand in the destination markets of Italian exports to the price elasticity in the destination markets of the other main euro-area countries' exports.

To this end, we use the elasticities of substitution across varieties estimated for each destination market (defined as a country-product combination) by Broda, Greenfield and Weinstein (2006). We find that Italy exports to markets which have, on average, a lower price elasticity than the markets where France, Germany and Spain sell their exports.

The result is mainly driven by the motor vehicle and other transport equipment sectors. Net of these two industries, the export elasticities of the four countries are basically identical. The sectoral and geographical composition of Italian exports therefore does not seem to expose them to a relatively more elastic demand, contrary to the indications of part of the literature.

Published in 2011 in: Economia e Politica Industriale, v. 38, 1, pp. 127-162