A Discussion on Armington Trade Substitution Elasticities

USITC Office of Economics Working Paper No. 2002-01-A

17 Pages Posted: 13 Jan 2002

See all articles by Christine A. McDaniel

Christine A. McDaniel

George Mason University - Mercatus Center

Edward J. Balistreri

Iowa State University

Date Written: January 2002

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.

Suggested Citation

McDaniel, Christine A. and Balistreri, Edward J., A Discussion on Armington Trade Substitution Elasticities (January 2002). USITC Office of Economics Working Paper No. 2002-01-A, Available at SSRN: https://ssrn.com/abstract=296510 or http://dx.doi.org/10.2139/ssrn.296510

Christine A. McDaniel (Contact Author)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States
703-993-9228 (Phone)

Edward J. Balistreri

Iowa State University ( email )

260 Heady Hall
Ames, IA 50011
United States
3032531674 (Phone)

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