Armington Elasticities For The UK Economy

In this paper, Armington elasticities, defined as the elasticities of substitution between imported and domestically produced goods, are econometrically estimated for the United Kingdom. These elasticities are intended for use in the GTAP computable general equilibrium model of world economy. Armington elasticities are critical parameters for such models but are rarely estimated empirically. With such reliance on general equilibrium models to inform policy, we want to determine how reliable such GTAP parameters are. With elasticities in the range of 0.001 to 2.692, the results of this paper suggest that the GTAP parameters of Armington elasticities are too high for an economy such as the United Kingdom. Thus, leading us to conclude that the GTAP model, with its current parameters, may inflate the gains from trade resulting from trade liberalisation.