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Explaining Armington: What Determines Substitutability Between Home and Foreign Goods?

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Author Info
Bruce A. Blonigen
Wesley W. Wilson
Abstract

For decades trade economists have modeled imperfect substitution between home and foreign goods in consumption (often called the Armington assumption) with little analysis of what explains the wide variation in these substitution elasticities across sectors. Using a varying coefficients model, the authors estimate Armington elasticities between U.S. domestic and foreign goods across over one hundred industrial sectors from 1980 to 1988 and examine the role of product, industry, political, and 'home bias' factors as determinants. They find strong support that the presence of foreign-owned affiliates affects Armington elasticities in important ways, and some support that entry barriers and union presence have an effect.

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File URL: http://economics.ca/cgi/xms?jab=v32n1/01.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 32 (1999)
Issue (Month): 1 (February)
Pages: 1-21
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Handle: RePEc:cje:issued:v:32:y:1999:i:1:p:1-21

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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  3. Christine A. McDaniel & Edward J. Balistreri, 2003. "A Discussion on Armington Trade Substitution Elasticities," Computational Economics 0303002, EconWPA. [Downloadable!]
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  13. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and Domestic Economic Activity," NBER Working Papers 11717, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Arslan Razmi, 2005. "The Effects of Export-Oriented, FDI-Friendly Policies on the Balance of Payments in a Developing Economy: A General Equilibrium Investigation," Working Papers 2005-03, University of Massachusetts Amherst, Department of Economics, revised Sep 2006. [Downloadable!]
  15. Carolyn L. Evans, 2001. "Home bias in trade: location or foreign-ness?," Staff Reports 128, Federal Reserve Bank of New York. [Downloadable!]
  16. Daniel Piazalo, 2000. "Poland’s Membership in the European Union: An Analysis with a Dynamic Computable General Equilibrium (CGE) Model," LICOS Discussion Papers 8900, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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