Comments on “Estimation of the Value-Added/Intermediate Input Substitution Consistent with the GTAP Data"

Alexandre Gohin () and Obafemi Philippe Koutchade ()
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Alexandre Gohin: SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement
Obafemi Philippe Koutchade: SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement

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Abstract: The first part of the paper written by Ivanic et al. (2023) (hereafter IBN) offers new estimates of the substitution elasticities between inputs for many industries. IBN develop an original econometric framework that solely relies on the GTAP (Global Trade Analysis Project) databases, which lack data on input prices. IBN find, first, that the short run elasticities are often statistically different from zero and of the correct sign; second, that the long-run elasticities are larger than their short-run counterparts. Our comment identifies three concerns with their econometric procedures and results. First, IBN do not acknowledge the Constant Return to Scale (CRS) assumption of the Constant Elasticity of Substitution (CES) function. Second, IBN 's statistical inference fails to correct the p-value problems associated with large samples. Third, the dynamic specification developed by IBN, where decisions are a function of price changes and not price levels, lacks theoretical justifications. We propose simple remedies to these three issues and, in some cases, find that many elasticity estimates are no longer statistically different from zero or of the correct sign. Moreover, we do not find different levels of significance between short- and long-run elasticities.

Keywords: Substitution elasticities; Econometrics; Crops (search for similar items in EconPapers)
Date: 2024-06-30
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Published in Journal of Global Economic Analysis, 2024, 9 (1), pp.62-76. ⟨10.21642/JGEA.090103AF⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04767318

DOI: 10.21642/JGEA.090103AF

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