Shifting Armington trade preferences: A re-examination of the Mercosur–EU negotiations
Philippidis, G., Resano, H. & Sanjuán, A.I. (2014) Shifting Armington trade preferences: A re-examination of the Mercosur–EU negotiations, Economic Modelling, 40, pp21-32.
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 ‘smallshare’
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.
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 ‘smallshare’
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.