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Armington Elasticities and Terms of Trade Effects in Global CGE Models

Author

Listed:
  • Xiao-guang Zhang

    (Productivity Commission)

Abstract

A Productivity Commission Staff Working Paper, Armington Elasticities and Terms of Trade Effects in Global CGE Models by Xiao-guang Zhang was released on 8 February 2006, in conjunction with the staff working paper, The Armington Model. Armington elasticities specify the degrees of substitution in demand between similar products produced in different countries. They are critical parameters which, along with model structure, data and other parameters, determine the results of policy experiments. Especially when many tariffs are small, trade liberalisation simulations can produce positive or negative welfare outcomes depending on the values assumed for Armington elasticities. The Commission developed a research program on the role of Armington elasticities in quantitative models that are commonly used to analyse trade issues. The research program was designed to improve the effectiveness of models used in analysing various options for unilateral, bilateral and multilateral liberalisation. The purpose of this paper is to illustrate the effects of the Armington assumption on one of the main factors that affects welfare outcomes, namely, the terms of trade. In publishing its research in this area, the Commission hopes to clarify issues that arise as single-country and global trade models are increasingly used to assess the potential impacts of various types of trade liberalisation. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.

Suggested Citation

  • Xiao-guang Zhang, 2006. "Armington Elasticities and Terms of Trade Effects in Global CGE Models," Staff Working Papers 0601, Productivity Commission, Government of Australia.
    • Handle: RePEc:ris:prodsw:0601
    as

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    File URL: http://www.pc.gov.au/__data/assets/pdf_file/0014/60404/armingtonelasticities.pdf
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    File URL: http://www.pc.gov.au/research/staffworkingpaper/armingtonelasticities
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    References listed on IDEAS

    as
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    3. Peter Lloyd & Xiao-guang Zhang, 2006. "The Armington Model," Staff Working Papers 0602, Productivity Commission, Government of Australia.
    4. Evans, David & Gasiorek, Michael & McDonald, Scott & Robinson, Sherman, 2006. "Trade Liberalisation with Trade Induced Technical Change in Morocco and Egypt: Findings and Wider Research Implications," Conference papers 331529, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
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    7. Ballingall, John & Giesecke, James & Zuccollo, James, 2010. "Tariffs in New Zealand," NZIER Working Paper 2010/1, New Zealand Institute of Economic Research.
    8. Georges, Patrick & Mérette, Marcel, 2011. "Trade Diversification Away from the U.S. or North American Customs Union? A Review of Canada’s Trade Policy Options," Conference papers 332084, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Mérette Marcel & Georges Patrick, 2010. "Demographic Changes and the Gains from Globalisation: An Analysis of Ageing, Capital Flows, and International Trade," Global Economy Journal, De Gruyter, vol. 10(3), pages 1-39, October.
    10. Romain Perez & Mustapha Sadni Jallab, 2009. "Preference erosion and market access liberalization: the African dilemma in multilateral negotiations on agriculture," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(2), pages 277-292, July.
    11. Delahaye, Elliot & Milot, Catherine, 2020. "Measuring the UK Economy’s Armington Elasticities," Conference papers 333170, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
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    13. Phouphet Kyophilavong & Michael C. S. Wong & Somchith Souksavath & Bin Xiong, 2017. "Impacts of trade liberalization with China and Chinese FDI on Laos: evidence from the CGE model," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 15(3), pages 215-228, July.
    14. Gharibnavaz, M. Reza & Waschik, Robert, 2012. "A General Equilibrium Analysis of Alternative Scenarios for Food and Energy Subsidy Reforms in Iran," Conference papers 332241, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    15. Banse, Martin & Faaij, Andre & Hoefnagels, Ric & Dornburg, Veronika, 2009. "Analysis of the Economic Impact of Large-Scale Deployment of Biomass Resources for Energy and Materials in the Netherlands," Conference papers 331902, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    16. Ernesto Valenzuela & Kym Anderson & Thomas Hertel, 2008. "Impacts of trade reform: sensitivity of model results to key assumptions," International Economics and Economic Policy, Springer, vol. 4(4), pages 395-420, February.
    17. He, Chuantian & Li, Chunding & Wang, Jing & Whalley, John, 2017. "The Armington assumption and the size of optimal tariffs," Economic Modelling, Elsevier, vol. 66(C), pages 214-222.
    18. Richard G. Harris & Peter E. Robertson, 2007. "Dynamic Gains and Market Access Insurance: Another look at the AUSFTA," Discussion Papers 2007-23, School of Economics, The University of New South Wales.
    19. Georges, Patrick & Lisenkova, Katerina & Mérette, Marcel, 2013. "Can the ageing North benefit from expanding trade with the South?," Economic Modelling, Elsevier, vol. 35(C), pages 990-998.
    20. Romain Perez & Stephen Njuguna Karingi, 2007. "How to Balance the Outcomes of the Economic Partnership Agreements for Sub‐Saharan African Economies?," The World Economy, Wiley Blackwell, vol. 30(12), pages 1877-1899, December.
    21. Richard G. Harris & Peter E. Robertson, 2009. "Dynamic Gains and Market Access Insurance: Another Look at the Australia–US Free Trade Agreement," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(4), pages 435-452, December.
    22. Changbo Qin & Z.(Bob) Su & Hans Th.A. Bressers & Yangwen Jia & Hao Wang, 2013. "Assessing the economic impact of North China's water scarcity mitigation strategy: a multi-region, water-extended computable general equilibrium analysis," Water International, Taylor & Francis Journals, vol. 38(6), pages 701-723, October.
    23. Nin Pratt, Alejandro & Diao, Xinshen, 2008. "Exploring Growth Linkages and Market Opportunities for Agriculture in Southern Africa," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 104-137.
    24. Missaglia, Marco & Valensisi, Giovanni, 2014. "Trade policy in Palestine: A reassessment," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 899-923.
    25. Porto, Massimiliano, 2018. "Free Trade Agreements and import-import substitution effect: Evidence from a CGE analysis: the case of EU-Korea and EU-Japan FTAs," Conference papers 332936, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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    More about this item

    Keywords

    armington elasticities; terms of trade effects; trade liberalisation;
    All these keywords.

    JEL classification:

    • F - International Economics
    • Z - Other Special Topics

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