RUHR. We Could not Care Less about Armington Elasticities But Should We? ECONOMIC PAPERS

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1 RUHR ECONOMIC PAPERS Hannah Schürenberg-Frosch We Could not Care Less about Armington Elasticities But Should We? A Meta-Sensitivity Analysis of the Influence of Armington Elasticity Misspecification on Simulation Results #594

2 Imprint Ruhr Economic Papers Published by Ruhr-Universität Bochum (RUB), Department of Economics Universitätsstr. 150, Bochum, Germany Technische Universität Dortmund, Department of Economic and Social Sciences Vogelpothsweg 87, Dortmund, Germany Universität Duisburg-Essen, Department of Economics Universitätsstr. 12, Essen, Germany Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) Hohenzollernstr. 1-3, Essen, Germany Editors Prof. Dr. Thomas K. Bauer RUB, Department of Economics, Empirical Economics Phone: +49 (0) 234/ , Prof. Dr. Wolfgang Leininger Technische Universität Dortmund, Department of Economic and Social Sciences Economics Microeconomics Phone: +49 (0) 231/ , Prof. Dr. Volker Clausen University of Duisburg-Essen, Department of Economics International Economics Phone: +49 (0) 201/ , Prof. Dr. Roland Döhrn, Prof. Dr. Manuel Frondel, Prof. Dr. Jochen Kluve RWI, Phone: +49 (0) 201/ , Editorial Office Sabine Weiler RWI, Phone: +49 (0) 201/ , Ruhr Economic Papers #594 Responsible Editor: Volker Clausen All rights reserved. Bochum, Dortmund, Duisburg, Essen, Germany, 2015 ISSN (online) ISBN The working papers published in the Series constitute work in progress circulated to stimulate discussion and critical comments. Views expressed represent exclusively the authors own opinions and do not necessarily reflect those of the editors.

3 Ruhr Economic Papers #594 Hannah Schürenberg-Frosch We Could not Care Less about Armington Elasticities But Should We? A Meta-Sensitivity Analysis of the Influence of Armington Elasticity Misspecification on Simulation Results

4 Bibliografische Informationen der Deutschen Nationalbibliothek Die Deutsche Bibliothek verzeichnet diese Publikation in der deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über: abrufbar. ISSN (online) ISBN

5 Hannah Schürenberg-Frosch 1 We Could not Care Less about Armington Elasticities But Should We? A Meta-Sensitivity Analysis of the Influence of Armington Elasticity Misspecification on Simulation Results Abstract This paper investigates the robustness of CGE models with respect to the elasticities of substitution in demand between domestically produced goods and foreign goods the so-called Armington elasticities. The Armington-type modeling of trade is still one of the most extensively used specifications in CGE modeling. For a long time the choice of the respective elasticities of substitution has not been given much attention. We resimulate 50 published CGE policy simulations each a 1000 times and randomize the elasticities. The results of this experiment clearly indicate that a change in the elasticities has noteworthy quantitative and qualitative effects on the results in more than half of the models. We thus conclude that the choice of the elasticities should get more attention and robustness of models with respect to elasticities should be tested by modellers. JEL Classification: F14, C68, F17 Keywords: Armington; trade elasticities; computable general equilibrium; meta-study November Hannah Schürenberg-Frosch, UDE. The author thanks Zoryana Olekseyuk, Volker Clausen and Edward J. Balistreri as well as seminar and conference participants in Essen, Melbourne and Paris for helpful discussions and suggestions. Mehdi Belayet Lincon provided the best possible research assistance. The usual disclaimer applies. All correspondence to: Hannah Schürenberg-Frosch, University of Duisburg-Essen, Chair of International Economics, Institute for Economics and Business Administration, Universitätsstr. 12, Essen, Germany, hannah.schuerenberg-frosch@uni-due.de

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