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

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

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.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 40 (2014)
Issue (Month): C ()
Pages: 21-32

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Handle: RePEc:eee:ecmode:v:40:y:2014:i:c:p:21-32
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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