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Armington Elasticities and Terms of Trade Effects in Global CGE Models

Author

Listed:
  • Xiao-guang Zhang

    (Productivity Commission)

Abstract

A Productivity Commission Staff Working Paper, Armington Elasticities and Terms of Trade Effects in Global CGE Models by Xiao-guang Zhang was released on 8 February 2006, in conjunction with the staff working paper, The Armington Model. Armington elasticities specify the degrees of substitution in demand between similar products produced in different countries. They are critical parameters which, along with model structure, data and other parameters, determine the results of policy experiments. Especially when many tariffs are small, trade liberalisation simulations can produce positive or negative welfare outcomes depending on the values assumed for Armington elasticities. The Commission developed a research program on the role of Armington elasticities in quantitative models that are commonly used to analyse trade issues. The research program was designed to improve the effectiveness of models used in analysing various options for unilateral, bilateral and multilateral liberalisation. The purpose of this paper is to illustrate the effects of the Armington assumption on one of the main factors that affects welfare outcomes, namely, the terms of trade. In publishing its research in this area, the Commission hopes to clarify issues that arise as single-country and global trade models are increasingly used to assess the potential impacts of various types of trade liberalisation. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.

Suggested Citation

  • Xiao-guang Zhang, 2006. "Armington Elasticities and Terms of Trade Effects in Global CGE Models," Staff Working Papers 0601, Productivity Commission, Government of Australia.
  • Handle: RePEc:ris:prodsw:0601
    as

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    File URL: http://www.pc.gov.au/__data/assets/pdf_file/0014/60404/armingtonelasticities.pdf
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    File URL: http://www.pc.gov.au/research/staffworkingpaper/armingtonelasticities
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    References listed on IDEAS

    as
    1. McDaniel, Christine A. & Balistreri, Edward J., 2002. "A Discussion on Armington Trade Substitution Elasticities," Working Papers 15856, United States International Trade Commission, Office of Economics.
    2. Hertel, Thomas & Hummels, David & Ivanic, Maros & Keeney, Roman, 2007. "How confident can we be of CGE-based assessments of Free Trade Agreements?," Economic Modelling, Elsevier, vol. 24(4), pages 611-635, July.
    3. Brown, Drusilla K., 1987. "Tariffs, the terms of trade, and national product differentiation," Journal of Policy Modeling, Elsevier, vol. 9(3), pages 503-526.
    4. Bhattarai, Keshab & Ghosh, Madanmohan & Whalley, John, 1999. "On some properties of a trade closure widely used in numerical modelling," Economics Letters, Elsevier, vol. 62(1), pages 13-21, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Peter Lloyd & Xiao-guang Zhang, 2006. "The Armington Model," Staff Working Papers 0602, Productivity Commission, Government of Australia.
    2. repec:eee:ecmode:v:66:y:2017:i:c:p:214-222 is not listed on IDEAS
    3. Richard G. Harris & Peter E. Robertson, 2007. "Dynamic Gains and Market Access Insurance: Another look at the AUSFTA," Discussion Papers 2007-23, School of Economics, The University of New South Wales.
    4. Georges, Patrick & Lisenkova, Katerina & Mérette, Marcel, 2013. "Can the ageing North benefit from expanding trade with the South?," Economic Modelling, Elsevier, vol. 35(C), pages 990-998.
    5. Ballingall, John & Giesecke, James & Zuccollo, James, 2010. "Tariffs in New Zealand," NZIER Working Paper 2010/1, New Zealand Institute of Economic Research.
    6. Changbo Qin & Z.(Bob) Su & Hans Th.A. Bressers & Yangwen Jia & Hao Wang, 2013. "Assessing the economic impact of North China's water scarcity mitigation strategy: a multi-region, water-extended computable general equilibrium analysis," Water International, Taylor & Francis Journals, vol. 38(6), pages 701-723, October.
    7. Nin Pratt, Alejandro & Diao, Xinshen, 2008. "Exploring Growth Linkages and Market Opportunities for Agriculture in Southern Africa," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 104-137.
    8. Ernesto Valenzuela & Kym Anderson & Thomas Hertel, 2008. "Impacts of trade reform: sensitivity of model results to key assumptions," International Economics and Economic Policy, Springer, vol. 4(4), pages 395-420, February.
    9. Romain Perez & Mustapha Sadni Jallab, 2009. "Preference erosion and market access liberalization: the African dilemma in multilateral negotiations on agriculture," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(2), pages 277-292, July.
    10. Missaglia, Marco & Valensisi, Giovanni, 2014. "Trade policy in Palestine: A reassessment," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 899-923.

    More about this item

    Keywords

    armington elasticities; terms of trade effects; trade liberalisation;

    JEL classification:

    • F - International Economics
    • Z - Other Special Topics

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