The elasticity of substitution in demand for non-tradable goods in Bolivia

Sergio G. Villarroel-Böhrt, Gover Barja, Javier Monterrey

Research output: Working paperOther research output

3 Downloads (Pure)

Abstract

This paper uses a CES function to estimate the constant elasticity of substitution in consumption for non-tradables relative to tradables in a dependent economy framework. The methodology for generating data on real consumption of tradable and non-tradable goods, real prices of tradable and non-tradable goods and real absorption is based on the Bolivian Input-Output Matrix, producing quarterly data for the period 1990.1 to 2002.4. The data identify Bolivia as a country highly open to trade, with an average ratio of 55 percent in the value of exports and imports relative to GDP, non-tradable production accounting for 52 percent of GDP, and differences in the behavior of the internal and external real exchange rates. The HEGY test is used to identify and separate out seasonal unit roots in the data. A cointegration relationship was found between real absorption, the non-tradable to tradable consumption ratio and the non-tradable to tradable price ratio, suggesting inelasticity of substitution.
Original languageEnglish
PublisherInter-American Development Bank and David Rockefeller Center for Latin American Studies
Pages1-38
Number of pages38
Publication statusPublished - Feb 2005
Externally publishedYes

    Fingerprint

Keywords

  • CES function
  • HEGY test
  • macro-economic effects

Cite this

Villarroel-Böhrt, S. G., Barja, G., & Monterrey, J. (2005). The elasticity of substitution in demand for non-tradable goods in Bolivia. (pp. 1-38). Inter-American Development Bank and David Rockefeller Center for Latin American Studies.