Armington elasticities and induced intra-industry specialization: The case of France, 1970-1997

Elasticities of substitution among imports and competing domestic production (Armington elasticities) play a key role in open-economy computable general equilibrium (CGE) modeling. Armington elasticities used in CGE models refer to heterogeneous product groups rather than homogeneous products, thus reflecting differences in the composition of the respective imported and domestic production. As these differences may rise over time, due to intra-industry specialization, empirical Armington elasticities will decrease. The paper examines this conjecture, using data for France, 1970-1997. It finds that for most product groups considered the Armington elasticity had a peak value in the 1980s and declined thereafter. While the average elasticity amounts to 0.84 in 1976-91, it declined almost continuously to 0.21 in 1982-97.