OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Price and Volume Elasticities of Brazilian Foreign Trade

A Profit Function Approach

Brazil, like other natural resource-exporting countries, has benefited from a sharp increase in commodity prices over the last few years. To investigate the possible impact of terms-of-trade gains on the real economy, this paper estimates normalised quadratic input demand and output supply functions for the Brazilian economy during 1997-2008. Technological change is modelled in a flexible manner through the inclusion of quadratic splines in the profit function. The paper contributes to the literature by using nonlinear seemingly unrelated regression techniques to estimate the input demand and output supply functions and by disaggregating exports and imports into capital, consumption and intermediate goods. Improvements in the terms of trade due to rising export prices and/or falling import prices are associated with hikes in export volumes on the back of rising import demand and some labour shedding in the sectors using imported capital goods. The direct impact of terms-of-trade changes on domestic consumption and investment is comparatively modest, possibly due to the fact that the Brazilian economy remains relatively closed to trade.


Keywords: terms of trade, seemingly unrelated regression, profit function, NQQS
JEL: F43: International Economics / Macroeconomic Aspects of International Trade and Finance / Economic Growth of Open Economies; F14: International Economics / Trade / Empirical Studies of Trade; F10: International Economics / Trade / Trade: General
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error