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GTAP Resource #1148

"A Review of Armington Trade Substitution Elasticities"
by Mcdaniel, Christine and Edward J. Balistreri

Results from applied partial and general equilibrium models used to examine trade policy are almost universally sensitive to trade elasticities. Indeed, the Armington elasticity, the degree of substitution between domestic and imported goods, is a key behavioral parameter that drives the quantitative, and sometimes the qualitative, results that policymakers use. While standard transparent approaches to econometric estimation of these elasticities have been offered for the last 30 years, many trade economists view the estimates as fairly small. A few robust findings emerge from the econometric literature: (1) long-run estimates are higher than short-run estimates, (2) more disaggregate analyses find higher elasticities, and (3) reduced-form time series analyses generally find lower elasticities relative to cross-sectional studies that include a consideration of the supply conditions. We offer simulation results to illustrate the sensitivity of general equilibrium models to Armington elasticities. We conclude with remarks on the current challenges that remain in choosing these important parameters.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Published
By/In: Joint Publication: Integration and Trade 7(18) p.161-173; and Economie Internationale 94-95 p.301-314.
Date: 2003
Created: (11/27/2002)
Updated: Balistreri, E. (8/27/2007)
Visits: 5,573
- Calibration and parameter estimation

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