A Dynamic Analysis of France's External Trade

Posted: 8 Apr 2011

See all articles by Giuseppe Carone

Giuseppe Carone

European Commission - DG ECFIN

Tassos Belessiotis

affiliation not provided to SSRN

Date Written: October 5, 1997

Abstract

The purpose of the present paper is to review the sources of France’s trade surplus in recent years and to attribute trade balance movements strictly to those determinants of trade flows suggested by economic theory. These determinants are price and/or cost developments, and demand in France and in the rest of the world. Nominal exchange rate movements in the 1990s have been perceived as playing a significant role in France’s trade performance, particularly during the depreciation episodes of 1992 and 1993, since they were considered to have imparted a competitive advantage to those trading partners whose currency had depreciated against the franc; ceteris paribus, and assuming that the nominal depreciation led to a real exchange depreciation, imports would increase and exports would decline, and the trade surplus in real terms would decline. This could have permanent effects on the trade balance since, according to some models of international trade, prolonged exchange rate appreciations, or depreciations can induce hysteresis phenomena (see Baldwin (1988), for example). At the same time, slow growth in France relative to the rest of the world in the 1990s would be expected to have led to a widening of the trade surplus. These two factors have a conflicting impact on trade balance movements, and since income elasticities are generally substantially larger than relative price elasticities it is possible to argue that the emergence of the trade surplus since the beginning of the 1990s is dominated by relative demand movements. A primary objective of the paper is to examine the empirical support for these propositions and to analyse the dynamics of adjustment of trade flows to changes in competitiveness and in relative demand. To do so, a cointegration/error-correction model is applied to flows of both imports and exports, and the estimates of key elasticities obtained are instrumental in shedding light on this question.

Keywords: Trade, export, France, Current account, cointegration, external demand

JEL Classification: F17, F20, F32, C22, C32

Suggested Citation

Carone, Giuseppe and belessiotis, tassos, A Dynamic Analysis of France's External Trade (October 5, 1997). Available at SSRN: https://ssrn.com/abstract=1803128

Giuseppe Carone (Contact Author)

European Commission - DG ECFIN ( email )

BU-1 04/175
Brussels, Bruxelles B-1049
Belgium

Tassos Belessiotis

affiliation not provided to SSRN ( email )

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