Armington Elasticities in Intermediate Inputs Trade: A Problem in Using Multilateral Trade Data

In this paper we find 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 employment of multilateral trade data to estimate Armington elasticities needs caution.

[1]  M. Pesaran,et al.  Testing for unit roots in heterogeneous panels , 2003 .

[2]  Sandra A. Rivera,et al.  Short-run and long-run industry-level estimates of U.S. Armington elasticities , 2003 .

[3]  D. Mirza,et al.  Import Price Elasticities: Reconsidering the Evidence , 2002 .

[4]  Edward J. Balistreri,et al.  A Discussion on Armington Trade Substitution Elasticities , 2002 .

[5]  K. Head,et al.  Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of US-C , 2001 .

[6]  Gordon H. Hanson,et al.  Global Production Sharing and Rising Inequality: A Survey of Trade and Wages , 2001 .

[7]  Peter Pedroni,et al.  Fully modified OLS for heterogeneous cointegrated panels , 2001 .

[8]  Scott L. Baier,et al.  The growth of world trade: tariffs, transport costs, and income similarity , 2001 .

[9]  Ronald W. Jones,et al.  Globalization and the Theory of Input Trade , 2000 .

[10]  Kei-Mu Yi,et al.  Can Vertical Specialization Explain the Growth of World Trade? , 2000, Journal of Political Economy.

[11]  David Hummels,et al.  The Nature and Growth of Vertical Specialization in World Trade , 1999 .

[12]  Bruce A. Blonigen,et al.  Explaining Armington: What Determines Substitutability Between Home and Foreign Goods? , 1999 .

[13]  David Hummels,et al.  Toward a Geography of Trade Costs , 1999, GTAP Working Paper.

[14]  Robert C. Feenstra,et al.  Integration of Trade and Disintegration of Production in the Global Economy , 1998 .

[15]  Susanto Basu,et al.  Procyclical Productivity: Increasing Returns or Cyclical Utilization? , 1995 .

[16]  R. Pollak,et al.  Demand System Specification and Estimation , 1995 .

[17]  A. Venables,et al.  Globalization and the Inequality of Nations , 1995 .

[18]  Stefan C. Norrbin,et al.  The Relation between Price and Marginal Cost in U.S. Industry: A Contradiction , 1993, Journal of Political Economy.

[19]  Kenneth A. Reinert,et al.  Modeling a north American free trade area: Estimation of flexible functional forms , 1993 .

[20]  Robert E. Hall,et al.  The Relation between Price and Marginal Cost in U.S. Industry , 1988, Journal of Political Economy.

[21]  Alan V. Deardorff,et al.  Estimates of the elasticities of substitution between imports and home goods for the United States: Reply , 1986 .

[22]  J. Bergstrand.  The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence , 1985 .

[23]  P. Chattopadhyay,et al.  Value and Capital , 1982 .

[24]  Kazuo Sato.  The Ideal Log-Change Index Number , 1976 .

[25]  D. Heien,et al.  The S-Branch Utility Tree: A Generalization of the Linear Expenditure System , 1972 .

[26]  Paul S. Armington.  A Theory of Demand for Products Distinguished by Place of Production (Une théorie de la demande de produits différenciés d'après leur origine) (Una teoría de la demanda de productos distinguiéndolos según el lugar de producción) , 1969 .

[27]  K. Sato.  A Two-Level Constant-Elasticity-of-Substitution Production Function , 1967 .

[28]  Daniel McFadden,et al.  Constant Elasticity of Substitution Production Functions , 1963 .

[29]  H. Uzawa,et al.  Production Functions with Constant Elasticities of Substitution , 1962 .

[30]  K. Arrow,et al.  Capital-labor substitution and economic efficiency , 1961 .

[31]  Jeffrey M. Woodbridge.  Econometric Analysis of Cross Section and Panel Data , 2002 .

[32]  P. Pedroni.  Current Version : July 25 , 1999 CRITICAL VALUES FOR COINTEGRATION TESTS IN HETEROGENEOUS PANELS WITH MULTIPLE REGRESSORS * , 1999 .

[33]  U. Kohli.  Semiflexibility vs. flexibility: U.S. imports and exports by commodity group , 1998 .

[34]  Paul Krugman,et al.  Growing World Trade: Causes and Consequences , 1995 .

[35]  R. Feenstra.  New Product Varieties and the Measurement of International Prices , 1994 .

[36]  Peter C. B. Phillips,et al.  Statistical Inference in Instrumental Variables Regression with I(1) Processes , 1990 .

[37]  Alan V. Deardorff,et al.  Estimates of the elasticities of substitution between imports and home goods for the United States , 1986 .

[38]  Wassily Leontief,et al.  Composite Commodities and the Problem of Index Numbers , 1936 .

[39]  Paul Krugman.  American Economic Association Scale Economies , Product Differentiation , and the Pattern of Trade , 2022 .