In Search of the Armington Elasticity

54 Pages Posted: 21 Apr 2014

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Philip A Luck

University of California

Maurice Obstfeld

University of California, Berkeley; Peterson Institute for International Economics; National Bureau of Economic Research; Centre for Economic Policy Research

Katheryn Russ

University of California, Davis

Date Written: April 2014

Abstract

The elasticity of substitution between goods from different countries---the Armington elasticity---is important for many questions in international economics, but its magnitude is subject to debate: the "macro" elasticity between home and import goods is often found to be smaller than the "micro" elasticity between foreign sources of imports. We investigate these two elasticities in a model using a nested CES preference structure. We explore estimation techniques for the macro and micro elasticities using both simulated data from a Melitz-style model, and highly disaggregate U.S. production data matched to Harmonized System trade data. We find that in up to one-half of goods there is no significant difference between the macro and micro elasticities, but in the other half of goods the macro elasticity is significantly lower than the micro elasticity, even when they are estimated at the same level of disaggregation.

Suggested Citation

Feenstra, Robert C. and Luck, Philip A and Obstfeld, Maurice and Russ, Katheryn, In Search of the Armington Elasticity (April 2014). NBER Working Paper No. w20063. Available at SSRN: https://ssrn.com/abstract=2427166

Robert C. Feenstra (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
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916-752-9240 (Phone)
916-752-9382 (Fax)

National Bureau of Economic Research (NBER)

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Philip A Luck

University of California

Maurice Obstfeld

University of California, Berkeley ( email )

530 Evans Hall #3880
Berkeley, CA 94720
United States

HOME PAGE: http://www.mauriceobstfeld.com

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research ( email )

London
United Kingdom

Katheryn Russ

University of California, Davis ( email )

Department of Economics
Davis, CA 95616
United States

HOME PAGE: http://www.econ.ucdavis.edu/faculty/knruss/

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