Empirical Evidence of Elasticity of Export and Import Towards the Change of Prices and Income - The case of Republic of Macedonia

Abstract

The imbalance of balance of payments and the presence of continued growing current account deficit are significant value for the stability of external equilibrium for different time prospects especially for long-term periods. A growth of global prices reflects immediately at the imbalance of the external equilibrium, reflecting as a value for having a balanced stability. The purpose of this paper is to analyze the sensitivity and the changes of trade, export and import from one side and the change of prices and income on the other side. The aim of this paper is to use the Thirlwall and ARDL model as most used models for quantifying the elasticity of these categories. The results for the case of Macedonia show that there is a significant elasticity of imports from the change of domestic income, and relative elasticity of exports from the change of global income. Variables that are used in this paper are: export, import, GDP, price ratio, ratio of domestic export prices to world prices, and ratio of foreign prices of imported goods and domestic prices for the period of 1990-2012.