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Estimating the Armington Elasticity: The Importance of Data Choice and Publication Bias

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  • Josef Bajzik

    (Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic)

  • Tomas Havranek

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)

  • Zuzana Irsova

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)

  • Jiri Schwarz

    (Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic)

Abstract

A key parameter in international economics is the elasticity of substitution between domestic and foreign goods, also called the Armington elasticity. Yet estimates vary widely. We collect 3,524 reported estimates of the elasticity, construct 34 variables that reflect the context in which researchers obtain their estimates, and examine what drives the heterogeneity in the results. To account for inherent model uncertainty, we employ Bayesian and frequentist model averaging. We present the first application of newly developed non-linear techniques to correct for publication bias. Our main results are threefold. First, there is publication bias against small and statistically insignificant elasticities. Second, differences in results are best explained by differences in data: aggregation, frequency, size, and dimension. Third, the mean elasticity implied by the literature after correcting for both publication bias and potential misspecifications is 3.

Suggested Citation

  • Josef Bajzik & Tomas Havranek & Zuzana Irsova & Jiri Schwarz, 2019. "Estimating the Armington Elasticity: The Importance of Data Choice and Publication Bias," Working Papers IES 2019/19, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2019.
  • Handle: RePEc:fau:wpaper:wp2019_19
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    Keywords

    Armington; trade elasticity; meta-analysis; publication bias; Bayesian model averaging;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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