Distribution Capital and the Short- and Long-Run Import Demand Elasticity

Mario J. Crucini, J. Scott Davis

NBER Working Paper No. 18753
Issued in February 2013, Revised in August 2013
NBER Program(s):International Finance and Macroeconomics, International Trade and Investment

The elasticity of substitution between home and foreign goods is one of the most important parameters in international economics. The international macro literature, which is primarily concerned with short-run business cycle fluctuations, assigns a low value to this parameter. The international trade literature, which is more concerned with long-run changes in trade flows following a change in relative prices, assigns a high value to this parameter. This paper constructs a model where this discrepancy between the short- and long-run elasticities is due to frictions in distribution. Goods need to be combined with a local non-traded input, distribution capital, which is good specific. Home and foreign goods may be close substitutes, but if distribution capital is slow to adjust then agents cannot shift their consumption in the short run following a change in relative prices, and home and foreign goods appear as poor substitutes in the short run. In the long run this distribution capital can be reallocated, and agents can shift their purchases following a change in relative prices. Thus the observed substitutability gets larger as time passes.

download in pdf format
   (361 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18753

Published: Crucini, Mario J. & Davis, J. Scott, 2016. "Distribution capital and the short- and long-run import demand elasticity," Journal of International Economics, Elsevier, vol. 100(C), pages 203-219. citation courtesy of

Users who downloaded this paper also downloaded* these:
Crucini and Yilmazkuday w18811 Understanding Long-run Price Dispersion
Diewert w2011 Export Supply and Import Demand Functions: A Production Theory Approach
Antràs and Yeaple w18775 Multinational Firms and the Structure of International Trade
Grossman w18788 Heterogeneous Workers and International Trade
Michaels, Rauch, and Redding w18715 Task Specialization in U.S. Cities from 1880-2000
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us