Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Estimating Industry-level Armington Elasticities For EMU Countries
Abstract: In an open economy economic agents distribute their
spending between domestic and various import goods and they may reconsider
their choice whenever relative international prices change. Armington
elasticities quantify these reallocations in demand for goods produced in
different countries. Recent analytical frameworks allow to further
differentiate between a macro elasticity of substitution between domestic
and import goods and a micro elasticity between different import sources.
Despite the relevance of Armington elasticities for evaluating trade policy
there has been no systematic study on whether micro and macro elasticities
significantly differ for highly integrated economies within a free trade
area and whether there is a common pattern. Using highly disaggregated
data, this paper estimates Armington elasticities for a panel of 15 EMU
Member States. Empirical results indicate a significant difference between
micro and macro elasticities for up to one half of the consistent product
groups considered, implying preferences across EMU countries are not
perfectly aligned with non-discriminatory tariffs. I conclude that both the
absolute and relative macro elasticities are informative and that
heterogeneous preference patterns link to current trade imbalances.
Keywords: International Trade, Armington, Substitution Elasticities, Nested CES-preferences, EMU, Industry-level, Matching Trade and Production Data; (follow links to similar papers)
JEL-Codes: F14; (follow links to similar papers)
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