GTAP Resources: Resource Display
| GTAP Resource #4710 |
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"We couldn't care less about Armington elasticities - but should we? A systematic analysis of the influence of Armington elasticity misspecification on model results" by Schuerenberg-Frosch, Hannah Abstract The submitted paper investigates the robustness of CGE models with respect to the elasticities of substitution in demand between domestically produced goods and foreign goods – the so-called Armington elasticities. The Armington-type modeling of trade is still one of the most extensively used specifications in CGE modeling. For a long time the choice of the respective elasticities of substitution has not been given much attention. The most frequently used procedure was to adopt the elasticities from the literature, which meant using elasticities that had been estimated (or guessed) for a different country and often also for a different degree of data aggregation. However, recently, some authors have shown that the elasticities 1) vary more substantially over countries than had been expected and 2) are higher in more recent estimations than in those which have been published in the 1980s and 1990s. McDaniel and Balistreri (2003) show in a simulation exercise that the choice of the elasticity might be crucial in determining welfare gains or losses from a given policy reform. They find that even a qualitative switch in the overall welfare result is possible by changing the Armington elasticity. Schürenberg-Frosch (2014) shows by drawing elasticities randomly from a uniform distribution that even though the quantity variables are robust, price results are quite sensitive with respect to the elasticity set. A similar approach is used by Frey and Olekseyuk (2014) and Jensen and Tarr (2011) with comparable results. Hummels (2013) argues that the frequently used elasticities in the literature, which stem from time series estimations of CES-functions are subject to a misspecification in the underlying econometric procedure and that the elasticities should be much higher. Given these recent concerns that we might have been mistaken in chosing the elasticities, it is interesting to perform a systematic assessment of the influence of a misspecification of Armington elas... |
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- Model validation and sensitivity analysis - Other data bases and data issues |
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Public Access  GTAP Resource 4710 (152.1 KB) Replicated: 0 time(s)Restricted Access No documents have been attached. Special Instructions No instructions have been specified. |
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Last Modified: 9/15/2023 2:05:45 PM
