Export Sophistication and Trade Elasticities

Does a country’s export structure impact the way that exchange rates affect
trade? Do more sophisticated products exhibit lower demand elasticities?
Using panel data for major exporters over the 1992–2016 period and dynamic
ordinary least squares techniques, we find that price elasticities are higher for
low-technology goods such as textiles and footwear than for high-technology
goods such as pharmaceuticals and medical equipment. We also find that
elasticities are larger for less advanced countries such as China than for more
advanced countries such as Switzerland. We draw policy implications from
these findings for countries exposed to safe haven capital flows, for countries
facing long-term appreciation pressures and for countries that specialise in low technology
exports.