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A Discussion on Armington Trade Substitution Elasticities

Christine McDaniel and Edward Balistreri ()

Computational Economics from EconWPA

Abstract: 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, the estimates are viewed as too small by many trade economists. A few robust findings emerge from the econometric literature: (1) more disaggregate analyses find higher elasticities, (2) long-run estimates are higher than short-run estimates, and (3) time series analyses generally find lower elasticities relative to cross-sectional studies. We offer simulation results to illustrate the sensitivity of general equilibrium models to Armington elasticites. We conclude with remarks on the current challenges that remain in determining these important parameters.

Keywords: Computable general equilibrium; International Trade; Armington; elasticity (search for similar items in EconPapers)
JEL-codes: F1 C68 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2003-03-27
Note: Type of Document - PDF; pages: 19; figures: included
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