Demand elasticities in international trade: are they really low?

At the intuitive level, trade economists generally believe that most develo ping and smaller developed countries do not have market power in the world market meaning that they face infinitely elastic demand for their goods. Ye t, the estimates of import demand elasticities facing them rarely exceed 3. In this paper, we provide evidence supporting trade economists' intuition. Using highly disaggregated data on textiles and apparel and exploiting the fact that these products are subject to Multi-Fiber Arrangement quotas, we find the import demand elasticity facing Bangladesh to be 26. We also find high cross-price elasticity with respect to the competitor countries. (C) 2001 Published by Elsevier Science B.V.