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Taste Parameters as Model Residuals: Assessing the “Fit” of an Armington Trade Model

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  • Russell H. Hillberry
  • Michael A. Anderson
  • Edward J. Balistreri
  • Alan K. Fox

Abstract

We note that calibration parameters in a multi‐country Armington trade model play a role similar to that of econometric residuals: they allow the model to fit the data exactly. We use this premise to evaluate the “fit” of a standard multi‐country computable general‐equilibrium model. We find that the model relies heavily on these parameters to explain the pattern of trade. In 33 of the 46 commodity groups we assess, modeled economic behavior explains less than 20% of the variation in bilateral trade. In a calibration‐ as‐estimation experiment, we estimate the commodity‐specific elasticities of substitution consistent with a well‐fitting model and find that they are substantially higher than widely accepted estimates.

Suggested Citation

  • Russell H. Hillberry & Michael A. Anderson & Edward J. Balistreri & Alan K. Fox, 2005. "Taste Parameters as Model Residuals: Assessing the “Fit” of an Armington Trade Model," Review of International Economics, Wiley Blackwell, vol. 13(5), pages 973-984, November.
  • Handle: RePEc:bla:reviec:v:13:y:2005:i:5:p:973-984
    DOI: 10.1111/j.1467-9396.2005.00548.x
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    References listed on IDEAS

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    1. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
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    Cited by:

    1. Welsch, Heinz, 2008. "Armington elasticities for energy policy modeling: Evidence from four European countries," Energy Economics, Elsevier, vol. 30(5), pages 2252-2264, September.
    2. Wenting Wang & Longbao Wei, 2021. "Impacts of agricultural price support policy on price variability and welfare: Evidence from China's soybean market," Agricultural Economics, International Association of Agricultural Economists, vol. 52(1), pages 3-17, January.
    3. Zhao, Xin & Calvin, Katherine V. & Wise, Marshall A. & Iyer, Gokul, 2021. "The role of global agricultural market integration in multiregional economic modeling: Using hindcast experiments to validate an Armington model," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 1-17.
    4. Bajzik, Josef & Havranek, Tomas & Irsova, Zuzana & Schwarz, Jiri, 2020. "Estimating the Armington elasticity: The importance of study design and publication bias," Journal of International Economics, Elsevier, vol. 127(C).
    5. Sang‐Wook (Stanley) Cho & Julián P. Díaz, 2016. "Accounting for Skill Premium Patterns: Evidence from the EU Accession," Southern Economic Journal, John Wiley & Sons, vol. 83(1), pages 271-299, July.

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