IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v40y2014icp21-32.html
   My bibliography  Save this article

Shifting Armington trade preferences: A re-examination of the Mercosur–EU negotiations

Author

Listed:
  • Philippidis, G.
  • Resano, H.
  • Sanjuán, A.I.

Abstract

This paper examines the ‘small share’ problem inherent within the constant elasticity of substitution Armington specification. As a de facto research tool in the quantitative trade literature, this structural bias plagues the results of numerous multi-region CGE studies. Kuiper and van Tongeren (2006) proposed a fusion of gravity and CGE specifications to remedy said bias, which the current paper further develops. With a pervasiveness of ‘small-share’ examples on Mercosur–European Union trade owing to the latter's restrictive tariff regime, the results reveal that significant additional trade led gains to Mercosur under a potential preferential trade agreement when compared with the standard Armington treatment.

Suggested Citation

  • Philippidis, G. & Resano, H. & Sanjuán, A.I., 2014. "Shifting Armington trade preferences: A re-examination of the Mercosur–EU negotiations," Economic Modelling, Elsevier, vol. 40(C), pages 21-32.
    • Handle: RePEc:eee:ecmode:v:40:y:2014:i:c:p:21-32
    DOI: 10.1016/j.econmod.2014.03.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999314001126
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2014.03.016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    2. Lota D. Tamini & Jean-Philippe Gervais & Bruno Larue, 2010. "Trade liberalisation effects on agricultural goods at different processing stages," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 37(4), pages 453-477, December.
    3. George Philippidis & Elisavet Kitou, 2012. "Quantifying opportunities and threats: examining the Canada--EU trade negotiations," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 15(4), pages 301-320, December.
    4. Valentina Raimondi & Alessandro Olper, 2011. "Trade Elasticity, Gravity and Trade Liberalisation: Evidence from the Food Industry," Journal of Agricultural Economics, Wiley Blackwell, vol. 62(3), pages 525-550, September.
    5. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    6. Martijn Burger & Frank van Oort & Gert-Jan Linders, 2009. "On the Specification of the Gravity Model of Trade: Zeros, Excess Zeros and Zero-inflated Estimation," Spatial Economic Analysis, Taylor & Francis Journals, vol. 4(2), pages 167-190.
    7. Márquez-Ramos, Laura & Martínez-Zarzoso, Inmaculada & Suárez-Burguet, Celestino, 2012. "Trade policy versus trade facilitation: An application using good old OLS," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-38.
    8. Keeny, Roman & Hertel, Thomas, 2005. "GTAP-AGR: A Framework for Assessing the Implications of Multilateral Changes in Agricultural Policies," Technical Papers 283422, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
    10. Lota D. Tamini & Maurice Doyon & Rodrigue Simon, 2016. "Analyzing Trade Liberalization Effects in the Egg Sector Using a Dynamic Gravity Model," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 64(2), pages 383-411, June.
    11. Santos Silva, J.M.C. & Tenreyro, Silvana, 2011. "Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator," Economics Letters, Elsevier, vol. 112(2), pages 220-222, August.
    12. Thomas L. Vollrath & Mark J. Gehlhar & Charles B. Hallahan, 2009. "Bilateral Import Protection, Free Trade Agreements, and Other Factors Influencing Trade Flows in Agriculture and Clothing," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(2), pages 298-317, June.
    13. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
    14. Melitz, Jacques, 2007. "North, South and distance in the gravity model," European Economic Review, Elsevier, vol. 51(4), pages 971-991, May.
    15. Renato G. Flôres Jr. & Masakazu Watanuki, 2008. "Integration Options for MERCOSUR: A Quantitative Analysis by the AMIDA Model," IDB Publications (Working Papers) 9287, Inter-American Development Bank.
    16. Xinshen Diao & Eugenio Díaz-Bonilla & Sherman Robinson, 2003. "Scenarios for Trade Integration in the Americas," Economie Internationale, CEPII research center, issue 94-95, pages 33-51.
    17. Muhammad Ullah & Kazuo Inaba, 2012. "Impact of RTA and PTA on Bangladesh’s Export: Application of a Gravity Model," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 445-460, December.
    18. Yener Kandogan, 2008. "Consistent Estimates of Regional Blocs' Trade Effects," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 301-314, May.
    19. Morris Morkre & David Tarr, 2014. "Reforming Hungarian Agricultural Trade Policy: A Quantitative Evaluation," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 3, pages 49-74, World Scientific Publishing Co. Pte. Ltd..
    20. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    21. Németh, Gabriella & Szabó, László & Ciscar, Juan-Carlos, 2011. "Estimation of Armington elasticities in a CGE economy-energy-environment model for Europe," Economic Modelling, Elsevier, vol. 28(4), pages 1993-1999, July.
    22. Brown, Drusilla K., 1987. "Tariffs, the terms of trade, and national product differentiation," Journal of Policy Modeling, Elsevier, vol. 9(3), pages 503-526.
    23. A. Colin Cameron & Pravin K. Trivedi, 2010. "Microeconometrics Using Stata, Revised Edition," Stata Press books, StataCorp LP, number musr, March.
    24. Foster, Neil & Poeschl, Johannes & Stehrer, Robert, 2011. "The impact of Preferential Trade Agreements on the margins of international trade," Economic Systems, Elsevier, vol. 35(1), pages 84-97, March.
    25. Martínez-Zarzoso, Inmaculada & Felicitas, Nowak-Lehmann D. & Horsewood, Nicholas, 2009. "Are regional trading agreements beneficial?: Static and dynamic panel gravity models," The North American Journal of Economics and Finance, Elsevier, vol. 20(1), pages 46-65, March.
    26. George Philippidis & Helena Resano-Ezcaray & Ana I. Sanjuán-López, 2013. "Capturing zero-trade values in gravity equations of trade: an analysis of protectionism in agro-food sectors," Agricultural Economics, International Association of Agricultural Economists, vol. 44(2), pages 141-159, March.
    27. Arie Arnon & Avia Spivak & J. Weinblatt, 1996. "The Potential For Trade Between Israel, The Palestinians and Jordan," The World Economy, Wiley Blackwell, vol. 19(1), pages 113-134, January.
    28. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Applications to Poisson Models," Econometrica, Econometric Society, vol. 52(3), pages 701-720, May.
    29. Huff, Karen & Thomas W. Hertel, 2001. "Decomposing Welfare Changes in GTAP," GTAP Technical Papers 308, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    30. George Philippidis & Elisavet Kitou, 2012. "Quantifying opportunities and threats: examining the Canada–EU trade negotiations," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 15(4), pages 301-320.
    31. World Bank, 2011. "World Development Indicators 2011," World Bank Publications - Books, The World Bank Group, number 2315, December.
    32. Renato G. Flores & Masakazy Watanuki, 2008. "Integration options for Mercosur : a quantitative analysis by the AMIDA model," INTAL Working Papers 1474, Inter-American Development Bank, INTAL.
    33. Pascal L. Ghazalian & Bruno Larue & Jean‐Philippe Gervais, 2009. "Exporting to new destinations and the effects of tariffs: the case of meat commodities," Agricultural Economics, International Association of Agricultural Economists, vol. 40(6), pages 701-714, November.
    34. Hayakawa, Kazunobu & Yamashita, Nobuaki, 2011. "The role of Preferential Trade Agreements (PTAs) in facilitating global production networks," IDE Discussion Papers 280, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    35. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, vol. 91(2), pages 386-390, May.
    36. Tamini, Lota Dabio & Doyon, Maurice & Simon, Rodrigue, 2012. "Analyzing Trade Liberalization Effect in the Egg Sector Using a Dynamic Gravity Model," Working Papers 125286, University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Himics, Mihaly & Fellmann, Thomas & Barreiro-Hurlé, Jesús & Witzke, Heinz-Peter & Pérez Domínguez, Ignacio & Jansson, Torbjörn & Weiss, Franz, 2018. "Does the current trade liberalization agenda contribute to greenhouse gas emission mitigation in agriculture?," Food Policy, Elsevier, vol. 76(C), pages 120-129.
    2. Jacopo Timini & Francesca Viani, 2022. "A highway across the Atlantic? Trade and welfare effects of the EU-Mercosur agreement," International Economics, CEPII research center, issue 169, pages 291-308.
    3. Kathryn Daenzer & Ian Wing & Karen Fisher-Vanden, 2014. "Coal’s medium-run future under atmospheric greenhouse gas stabilization," Climatic Change, Springer, vol. 123(3), pages 763-783, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ana Sanjuan Lopez & Helena Resano Ezcaray, 2015. "Gravity estimations to correct the 'small shares stay small' bias in economic models," JRC Research Reports JRC96089, Joint Research Centre.
    2. Sanjuán, Ana I. & Philippidis, George & Resano, Helena, 2013. "Gravity estimation of non tariff measures (NTMs) on EU-USA agri-food trade: Implications for further analysis," Conference papers 332375, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Pascal L. Ghazalian, 2019. "Canada's beef exports: Border effects and prospects for market access," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 67(1), pages 53-74, March.
    4. Pascal L. Ghazalian, 2015. "The New Tomato Suspension Agreement: What Are the Implications for Trade Flows?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 63(3), pages 359-380, September.
    5. Kareem, Fatima Olanike & Martinez-Zarzoso, Inmaculada & Brümmer, Bernhard, 2016. "Fitting the Gravity Model when Zero Trade Flows are Frequent: a Comparison of Estimation Techniques using Africa's Trade Data," GlobalFood Discussion Papers 230588, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    6. Maria Cipollina & David Laborde Debucquet & Luca Salvatici, 2017. "The tide that does not raise all boats: an assessment of EU preferential trade policies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(1), pages 199-231, February.
    7. Rodolfo Metulini & Roberto Patuelli & Daniel A. Griffith, 2018. "A Spatial-Filtering Zero-Inflated Approach to the Estimation of the Gravity Model of Trade," Econometrics, MDPI, vol. 6(1), pages 1-15, February.
    8. Tamaş Anca, 2020. "Why should the gravity model be taught in business education?," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 14(1), pages 422-433, July.
    9. Hirsch, Cornelius & Krisztin, Tamás & See, Linda, 2020. "Water Resources as Determinants for Foreign Direct Investments in Land - A Gravity Analysis of Foreign Land Acquisitions," Ecological Economics, Elsevier, vol. 170(C).
    10. Lota D. Tamini & Maurice Doyon & Rodrigue Simon, 2016. "Analyzing Trade Liberalization Effects in the Egg Sector Using a Dynamic Gravity Model," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 64(2), pages 383-411, June.
    11. Bo Xiong & Sixia Chen, 2014. "Estimating gravity equation models in the presence of sample selection and heteroscedasticity," Applied Economics, Taylor & Francis Journals, vol. 46(24), pages 2993-3003, August.
    12. Jin, Seung Ha, 2013. "The Effect of South Korean FTAs on Trade: Country-level and Industry-level Analyses," Master's Theses and Plan B Papers 149430, University of Minnesota, Department of Applied Economics.
    13. Lota Tamini & Mankan M. Koné & Aristide B. Valéa, 2019. "Impact de la modification de la structure tarifaire américaine sur les exportations bioalimentaires québécoises - Partie 2 : Structure du commerce et des investissements directs étrangers des principa," CIRANO Project Reports 2019rp-03, CIRANO.
    14. Zenebe, Addisalem & Peterson, Wesley & Wamisho, Kassu, 2014. "The Impact of the African Growth and Opportunity Act (AGOA): An Empirical Analysis of Sub-Saharan African Agricultural Exports," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170590, Agricultural and Applied Economics Association.
    15. (ed.), 0. "Research Handbook on Economic Diplomacy," Books, Edward Elgar Publishing, number 16053.
    16. Michele Fratianni & Francesco Marchionne, 2011. "The Limits to Integration," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume I, chapter 9, Edward Elgar Publishing.
    17. Peter Egger & Douglas Nelson, 2011. "How Bad Is Antidumping? Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1374-1390, November.
    18. Bo Xiong & John Beghin, 2017. "Disentangling Demand-Enhancing And Trade-Cost Effects Of Maximum Residue Regulations," World Scientific Book Chapters, in: John Christopher Beghin (ed.), Nontariff Measures and International Trade, chapter 6, pages 105-108, World Scientific Publishing Co. Pte. Ltd..
    19. Kristian Behrens & Cem Ertur & Wilfried Koch, 2012. "‘Dual’ Gravity: Using Spatial Econometrics To Control For Multilateral Resistance," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(5), pages 773-794, August.
    20. Marie M Stack & Rob Ackrill & Martin Bliss, 2019. "Sugar trade and the role of historical colonial linkages," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 46(1), pages 79-108.

    More about this item

    Keywords

    Small shares; Armington function; International trade; Gravity equation; CGE models;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:40:y:2014:i:c:p:21-32. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.