THE AGGREGATE OF ELASTICITIES OR THE ELASTICITY OF THE AGGREGATES: U.S. TRADE IN SERVICES

I use the automated search algorithm to address practical issues that arise in estimating income and price elasticities for U.S. trade in services: specification of dynamics, specification of the search strategy, simultaneity biases, and aggregation biases. Specifically, starting from a general, autoregressive distributed lag formulation, I use automated specification algorithms to obtain a specific formulation. I assess simultaneity biases by applying OLS, IV, and FIML. I assess aggregation biases by comparing the aggregate of the elasticities to the elasticity of the aggregate. Ignoring these considerations results in a formulation that cannot explain the divergence of service and merchandise balances