Declining long-run income elasticities and the rise of cyclicality of trade: Evidence from Greece, 1995–2018

Abstract

We estimate export and import demand elasticities of Greece between 1995 and 2018 by establishing cointegrating relationships between exports or imports, income and the real effective exchange rate. When accounting for structural breaks in the series, we observe that the long-run income elasticities of exports and imports are elastic and decline throughout the sample period. The structural component of the Greek trade growth decreases across time. The cyclical counterpart rises and exhibits high variation. Changes in the real effective exchange rate have the opposite than predicted effects on trade in the postcrisis period for exports and throughout the sample for imports.