Has Trade Become More Responsive to Income? Assessing the Evidence for US Imports

This study tests the stability of a standard equation for aggregate US imports over the period 1975-2011. It finds evidence of significant parameter instability, though its dating varies with the equation specification and diagnostic. Nonetheless, the analysis finds a significant rise in the long-run income elasticity that is robust across most break dates and specifications. The increase in the long-run income elasticity is consistent with shifts in the composition of aggregate imports toward capital and consumer goods. There is further evidence that vertical specialization may be behind both the structural instability and the apparent rise in the income elasticity of aggregate US imports.