Tjeerd Boonman, Ph.D., assistant professor in the Department of Economics, Finance, and Real Estate and McMullen Family Professor in Economics in the Leon Hess Business School, is the lead author of "The Impact of Changes in Real Income and the Real Effective Exchange Rate on Trade in Goods and Services," published in the International Journal of Economics and Finance. The research analyzes trade patterns among 15 advanced economies, measuring how shifts in income and exchange rates affect exports and imports over the long term.

Using foreign trade data that distinguish between goods and services, the authors find that rising domestic and foreign incomes increase demand for imports and exports, respectively. The impact of income changes appears stronger for services than for goods, suggesting that economic growth may play a larger role in shaping service-sector trade than previously recognized.

"Our findings show that income growth matters not only for how much countries trade, but for what they trade," Boonman said. "The income elasticity of service imports is higher than for goods imports. So, when domestic income rises, consumers tend to import relatively more services than goods. As people get richer, they spend disproportionately more on services that enhance quality of life, leisure, experiences, or convenience. For example, people spend more on holidays abroad. The result is also in line with the Law of Engel: when a country is richer, the share of income spent on basic goods-especially food and necessities-declines, while the share spent on services rises."

The study also finds that a depreciation in a country's real effective exchange rate-meaning its currency becomes more competitive relative to trading partners-generally boosts exports, while the effect on imports varies by country. The authors report substantial cross-country differences in how sensitive trade flows are to income and price changes, underscoring that national economic structures and policy environments shape trade outcomes in distinct ways.

"Policymakers often assume exchange rate movements will affect all countries in similar ways," Boonman noted.

The findings contribute to ongoing debates about trade competitiveness, globalization, and the role of macroeconomic policy in shaping international commerce. By separating goods and services, the study provides more precise evidence that may help governments and financial institutions better anticipate how economic shocks, currency shifts, and income growth affect trade balances.

Boonman also recognized support from the McMullen Family and the Leon Hess Business Council. He added, "Their support allows me to dedicate more time to research and to involve students in parts of the process."

The full article appears in the International Journal of Economics and Finance and is available online through Wiley.