To illustrate the model, we have calculated trade elasticity estimates for exports
to the United States in 2009. We use WIOD data for all countries in 2009 to
calculate the value-added shares and US expenditure shares of exports from 27
countries in 13 manufacturing sectors.17 We also use our econometric estimates
of λ and σ from Table 4.2. Table 4.3 provides specific examples for exports of
electrical and optical equipment in 2009 from three different countries to the
United States. The table reports the two sets of trade elasticity estimates, and
it reports the value-added shares measures that underlie the differences in the
estimates across the four countries. For example, the China column indicates that
a 10 per cent increase in the renminbi price of a US dollar (a 10 per cent renminbi
depreciation relative to the US dollar) will increase the value of China’s exports
to the US in this sector by 2.039 per cent (if the value-added trade data are not
used in the estimate) or by 1.373 per cent (in our preferred specification using
value-added trade data). The latter is almost a third lower. The trade elasticity that
uses the value-added trade data is a combination of a positive 2.156 per cent
own-price effect and a negative 0.783 percent price-index effect that offsets
some of the own price effect.