EconPapers    
Economics at your fingertips  
 

Trade policy analysis in Brazil: Assessing welfare impacts with revised Armington elasticities

Paulo Felipe Oliveira and Pedro Antero Cordeiro

Economic Modelling, 2023, vol. 129, issue C

Abstract: Evaluating the impacts of trade policy through simulation can offer valuable insights, especially for developing countries still confronting significant trade barriers. However, the credibility of these insights might be compromised if the simulations depend on parameters derived from developed economies or are constrained by ad-hoc assumptions within the literature. To quantify these implications, we focus on Brazil as a case study, utilizing a Melitz-style model that facilitates sector-specific estimation of both an upper-tier “home-foreign” macroelasticity and a lower-tier “foreign-foreign” microelasticity. While 66%–77% of microelasticities surpass macroelasticities, the precision falls short in confirming the “rule of two” — the assumption that the microelasticity is twice the macroelasticity. In a simulated trade liberalization scenario, our findings show that welfare changes fall below those of models adhering to this rule, yet exceed those of approaches overlooking differentiation between the two elasticities. Furthermore, incorporating imperfect factor mobility results in more moderated predictions for welfare outcomes.

Keywords: Armington elasticity; International trade; Melitz (search for similar items in EconPapers)
JEL-codes: F14 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999323003504
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:129:y:2023:i:c:s0264999323003504

DOI: 10.1016/j.econmod.2023.106538

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2024-12-28
Handle: RePEc:eee:ecmode:v:129:y:2023:i:c:s0264999323003504