Institutional Affiliation: University of Colorado Denver
|In Search of the Armington Elasticity|
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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 macr...
Published: Robert C. Feenstra & Philip Luck & Maurice Obstfeld & Katheryn N. Russ, 2018. "In Search of the Armington Elasticity," The Review of Economics and Statistics, vol 100(1), pages 135-150. citation courtesy of