Shifting Armington trade preferences: A re-examination of the Mercosur–EU negotiations

George Philippidis, H. Resano and A.I. Sanjuán

Economic Modelling, 2014, vol. 40, issue C, 21-32

Abstract: This paper examines the ‘small share’ problem inherent within the constant elasticity of substitution Armington specification. As a de facto research tool in the quantitative trade literature, this structural bias plagues the results of numerous multi-region CGE studies. Kuiper and van Tongeren (2006) proposed a fusion of gravity and CGE specifications to remedy said bias, which the current paper further develops. With a pervasiveness of ‘small-share’ examples on Mercosur–European Union trade owing to the latter's restrictive tariff regime, the results reveal that significant additional trade led gains to Mercosur under a potential preferential trade agreement when compared with the standard Armington treatment.

Keywords: Small shares; Armington function; International trade; Gravity equation; CGE models (search for similar items in EconPapers)
JEL-codes: C13 C68 F13 F14 F17 Q17 Q18 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:40:y:2014:i:c:p:21-32

DOI: 10.1016/j.econmod.2014.03.016

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