Assessment of the impact of income factors and relative prices on the foreign trade flows

Abstract

Introduction. In the context of globalization and integration of Ukraine into international markets it is important to carry out an effective and balanced economic policy in order to eliminate external imbalances in the economy. Considering that fact that it is the second  year when we can observe the falling of export and import of goods and services. Understanding the important role of foreign trade for the economy of Ukraine, the question of modeling the dynamics of trade flows and identification of the factors that affect them become actual.

Purpose. The aim of the article is to determine the elasticities by income and relative prices for Ukrainian export and import.

Methods. In order to achieve the set goal we have used the following general scientific and special methods: economic modeling and analysis, econometric method and others.

Results. It has been considered the question of evaluation of the impact of relative prices factors and income on foreign trade flows in Ukraine. In order to estimate the elasticity of income and relative prices it has been constructed the equations for Ukrainian export and import, where the income and relative prices are used in accordance to GDP and the REER. Also we have developed the alternative equations, where instead of the REER we have used the multiple price indices.

Estimates of elasticities of export and import flows according to relative price and income are worked out. As in the base so in the alternative equations the assessments are within the acceptable limits and statistically significant. According to the study it has been confirmed the hypothesis of unit elasticity of income and an important role in shaping the relative prices of export and import flows. Also it has been found out that the condition of Marshall-Lerner is fulfilled for Ukraine. As in the short-term perspective the reaction of the trade balance in nominal depreciation also depends on the behavior of prices, it is appropriate becomes the study of construction of equations for deflators of export and import of goods and services.