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Shifting Armington trade preferences: A re-examination of the Mercosur–EU negotiations

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  • Philippidis, G.
  • Resano, H.
  • Sanjuán, A.I.

Abstract

This paper examines the ‘small share’ problem inherent within the constant elasticity of substitution Armington specification. As a de facto research tool in the quantitative trade literature, this structural bias plagues the results of numerous multi-region CGE studies. Kuiper and van Tongeren (2006) proposed a fusion of gravity and CGE specifications to remedy said bias, which the current paper further develops. With a pervasiveness of ‘small-share’ examples on Mercosur–European Union trade owing to the latter's restrictive tariff regime, the results reveal that significant additional trade led gains to Mercosur under a potential preferential trade agreement when compared with the standard Armington treatment.

Suggested Citation

  • Philippidis, G. & Resano, H. & Sanjuán, A.I., 2014. "Shifting Armington trade preferences: A re-examination of the Mercosur–EU negotiations," Economic Modelling, Elsevier, vol. 40(C), pages 21-32.
    • Handle: RePEc:eee:ecmode:v:40:y:2014:i:c:p:21-32
    DOI: 10.1016/j.econmod.2014.03.016
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    More about this item

    Keywords

    Small shares; Armington function; International trade; Gravity equation; CGE models;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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