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Armington Elasticities in Intermediate Inputs Trade

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  • Mika Saito

Abstract

This paper finds that the estimates of Armington elasticities (the elasticity of substitution between groups of products identified by country of origin) obtained from multilateral trade data can differ from those obtained from bilateral trade data. In particular, the former tends to be higher than the latter when trade consists largely of intermediate inputs. Given that the variety of intermediate inputs traded across borders is increasing rapidly, and that the effect of this increase is not adequately captured in multilateral trade data, the evidence shows that the use of multilateral trade data to estimate Armington elasticities needs caution.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/22.

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Length: 39
Date of creation: 01 Feb 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/22

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Related research

Keywords: Bilateral trade; Economic models; trade data; intermediate inputs; equations; multilateral trade; equation; bilateral trade data; statistics; international trade; cointegration; elasticity of substitution; transport costs; import price; metal products; tariff rates; domestic goods; separability; imported inputs; world trade; correlation; minimization; functional form; regression equation; time series; aggregate imports; product differentiation; constant elasticity of substitution; functional forms; trading partners; vertical specialization; country of origin; perfect competition; political economy; producer price index; transport cost; transport equipment; fixed investment; instrumental variables; domestic price; import prices; investment goods; trade patterns; survey; statistical significance; importing country; cross-country variation; free trade; tariff rate; global production; instrumental variable; horizontal axis; trade area; statistical inference; domestic demand; trade classification; trade liberalization; maximum likelihood estimator; unilateral trade; missing data; global trade; logarithm; global trade analysis; unilateral trade liberalization; exporting countries; consistent estimator; aggregate trade; free trade area; trade costs; value of imports; trade relations; bilateral trade relations; econometrics; random walk; domestic prices; trade models; price of imports; net exports; international standard; income elasticities; covariance;

References

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  1. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
  2. Basu, Susanto, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 719-51, August.
  3. Krugman, Paul & Venables, Anthony J., 1994. "Globalization and the Inequality of Nations," CEPR Discussion Papers 1015, C.E.P.R. Discussion Papers.
  4. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October.
  5. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
  6. Helene Erkel-Rousse & Daniel Mirza, 2000. "Import Price-Elastcities: Reconsidering the Evidence," Econometric Society World Congress 2000 Contributed Papers 0909, Econometric Society.
  7. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
  8. Bruce A. Blonigen & Wesley W. Wilson, 1999. "Explaining Armington: What Determines Substitutability Between Home and Foreign Goods?," Canadian Journal of Economics, Canadian Economics Association, vol. 32(1), pages 1-21, February.
  9. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, December.
  10. repec:fth:iniesr:430 is not listed on IDEAS
  11. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  12. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
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