Armington Elasticity Study Reveals Surprising Impact on International Trade Dynamics.
The Armington elasticity, which measures how easily goods from different countries can be substituted for each other, is a hot topic in international economics. Researchers used a model with nested CES preferences to study this elasticity. They looked at both macro and micro elasticities using different data sets. Their findings show that in about half of the goods studied, there is no significant difference between the two elasticities. However, in the other half, the macro elasticity is significantly lower than the micro elasticity, even when estimated at the same level of detail.