In Search of the Armington Elasticity

Abstract

The elasticity of substitution between goods from different countries---the Armington elasticity---is important for many questions in international economics, but its magnitude is subject to debate: the "macro" elasticity between home and import goods is often found to be smaller than the "micro" elasticity between foreign sources of imports. We investigate these two elasticities in a model using a nested CES preference structure. We explore estimation techniques for the macro and micro elasticities using both simulated data from a Melitz-style model, and highly disaggregate U.S. production data matched to Harmonized System trade data. We find that in up to one-half of goods there is no significant difference between the macro and micro elasticities, but in the other half of goods the macro elasticity is significantly lower than the micro elasticity, even when they are estimated at the same level of disaggregation.

Welfare Effects of TTIP in a DSGE Model

“…Our baseline choice for the cross-country substitutability is 3. This is a compromise between values used in the macro and trade literature, and is roughly consistent with the findings of Feenstra et al (2014), who use a consumption index similar to ours. They find that the median estimates of the micro elasticity (elasticity between alternative import suppliers) are between 3.2 and 4.1, whereas the macro elasticity (elasticity between domestic and foreign suppliers) may be somewhat lower.…”

Exporters and Shocks

“…The second column of Table 6 reports the results from estimating our baseline exit equation, equation (11). We do not find evidence of statistically significant relationships between the rate of exit and the level of tariffs or real exchange rates.…”

Trade Theory with Numbers: Quantifying the Consequences of Globalization

“…They find an average elasticity equal to 7.8, quite in line with previous gravity estimates of σ. Likewise, using the methodology of Feenstra (1994) to estimate both γ and σ, Feenstra, Obstfeld, and Russ (2013) cannot reject the null that γ and σ are equal.…”