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Taste Parameters as Model Residuals: Assessing the "Fit" of an Armington Trade Model

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Author Info

  • Russell H. Hillberry
  • Michael A. Anderson
  • Edward J. Balistreri
  • Alan K. Fox

Abstract

We note that calibration parameters in a multi-country Armington trade model play a role similar to that of econometric residuals: they allow the model to fit the data exactly. We use this premise to evaluate the "fit" of a standard multi-country computable general-equilibrium model. We find that the model relies heavily on these parameters to explain the pattern of trade. In 33 of the 46 commodity groups we assess, modeled economic behavior explains less than 20% of the variation in bilateral trade. In a calibration- as-estimation experiment, we estimate the commodity-specific elasticities of substitution consistent with a well-fitting model and find that they are substantially higher than widely accepted estimates. Copyright 2005 International Monetary Fund.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 13 (2005)
Issue (Month): 5 (November)
Pages: 973-984

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Handle: RePEc:bla:reviec:v:13:y:2005:i:5:p:973-984

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Cited by:
  1. Whalley, John & Xin, Xian, 2009. "Home and regional biases and border effects in Armington type models," Economic Modelling, Elsevier, vol. 26(2), pages 309-319, March.
  2. Kim J. Ruhl, 2008. "The International Elasticity Puzzle," Working Papers 08-30, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Bureau Jean-Christophe & Salvatici Luca, 2004. "WTO Negotiations on Market Access in Agriculture: a Comparison of Alternative Tariff Cut Proposals for the EU and the US," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-35, March.
  4. Balistreri, Edward J. & Markusen, James R., 2009. "Sub-national differentiation and the role of the firm in optimal international pricing," Economic Modelling, Elsevier, vol. 26(1), pages 47-62, January.
  5. Yilmazkuday, Hakan, 2012. "Understanding interstate trade patterns," Journal of International Economics, Elsevier, vol. 86(1), pages 158-166.
  6. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2011. "Structural estimation and solution of international trade models with heterogeneous firms," Journal of International Economics, Elsevier, vol. 83(2), pages 95-108, March.
  7. Lorenzo Caliendo & Fernando Parro, 2012. "Estimates of the Trade and Welfare Effects of NAFTA," NBER Working Papers 18508, National Bureau of Economic Research, Inc.
  8. Cho, Sang-Wook (Stanley) & Díaz, Julián P., 2013. "Trade integration and the skill premium: Evidence from a transition economy," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 601-620.
  9. Hillberry, Russell & Hummels, David, 2013. "Trade Elasticity Parameters for a Computable General Equilibrium Model," Handbook of Computable General Equilibrium Modeling, Elsevier.
  10. Debaere, Peter & Mostashari, Shalah, 2010. "Do tariffs matter for the extensive margin of international trade? An empirical analysis," Journal of International Economics, Elsevier, vol. 81(2), pages 163-169, July.

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