Linking Armington and CET Elasticities of Substitution and Transformation to Price Elasticities of Import Demand and Export Supply: A Note for CGE Practitioners

Autores
Lofgren, Hans; Cicowiez, Martín
Año de publicación
2018
Idioma
inglés
Tipo de recurso
documento de trabajo
Estado
versión enviada
Descripción
Armington and constant-elasticity-of-transformation (CET) functions are routinely used in computable general equilibrium (CGE) Models to model foreign trade. The CET function is applied to producer decisions about whether to export and or sell at home. Decisions by domestic demanders whether to purchase imports or domestic output are covered by the Armington function. The Armington function is a constant-elasticity-of-substitution (CES) function. This note is concerned with the links between (a) price elasticities of import demand and constant elasticities of substitution between demand for imports and domestic output; and (b) price elasticities of export supply and constant elasticities of transformation between supply to exports and domestic market. These links are important since researchers often may wish to compare estimates of price elasticities to the price elasticities implied by elasticities of substitution and transformation. In this note, price elasticities related to each function are derived from their representation in many CGE models – the function itself and a first-order optimality condition. In an appendix, these representations are derived from cost minimization and revenue maximization given prices and the “technology” embodied by the Armington and CET functions.
Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS)
Materia
Ciencias Económicas
price elasticities
computable general equilibrium
Armington
constant-elasticity-of-transformation
Nivel de accesibilidad
acceso abierto
Condiciones de uso
http://creativecommons.org/licenses/by/4.0/
Repositorio
SEDICI (UNLP)
Institución
Universidad Nacional de La Plata
OAI Identificador
oai:sedici.unlp.edu.ar:10915/65385

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spelling Linking Armington and CET Elasticities of Substitution and Transformation to Price Elasticities of Import Demand and Export Supply: A Note for CGE PractitionersLofgren, HansCicowiez, MartínCiencias Económicasprice elasticitiescomputable general equilibriumArmingtonconstant-elasticity-of-transformationArmington and constant-elasticity-of-transformation (CET) functions are routinely used in computable general equilibrium (CGE) Models to model foreign trade. The CET function is applied to producer decisions about whether to export and or sell at home. Decisions by domestic demanders whether to purchase imports or domestic output are covered by the Armington function. The Armington function is a constant-elasticity-of-substitution (CES) function. This note is concerned with the links between (a) price elasticities of import demand and constant elasticities of substitution between demand for imports and domestic output; and (b) price elasticities of export supply and constant elasticities of transformation between supply to exports and domestic market. These links are important since researchers often may wish to compare estimates of price elasticities to the price elasticities implied by elasticities of substitution and transformation. In this note, price elasticities related to each function are derived from their representation in many CGE models – the function itself and a first-order optimality condition. In an appendix, these representations are derived from cost minimization and revenue maximization given prices and the “technology” embodied by the Armington and CET functions.Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS)2018-03info:eu-repo/semantics/workingPaperinfo:eu-repo/semantics/submittedVersionDocumento de trabajohttp://purl.org/coar/resource_type/c_8042info:ar-repo/semantics/documentoDeTrabajoapplication/pdfhttp://sedici.unlp.edu.ar/handle/10915/65385enginfo:eu-repo/semantics/altIdentifier/url/http://www.cedlas.econo.unlp.edu.ar/wp/wp-content/uploads/doc_cedlas222.pdfinfo:eu-repo/semantics/altIdentifier/issn/1853-0168info:eu-repo/semantics/openAccesshttp://creativecommons.org/licenses/by/4.0/Creative Commons Attribution 4.0 International (CC BY 4.0)reponame:SEDICI (UNLP)instname:Universidad Nacional de La Platainstacron:UNLP2025-09-29T11:09:33Zoai:sedici.unlp.edu.ar:10915/65385Institucionalhttp://sedici.unlp.edu.ar/Universidad públicaNo correspondehttp://sedici.unlp.edu.ar/oai/snrdalira@sedici.unlp.edu.arArgentinaNo correspondeNo correspondeNo correspondeopendoar:13292025-09-29 11:09:33.643SEDICI (UNLP) - Universidad Nacional de La Platafalse
dc.title.none.fl_str_mv Linking Armington and CET Elasticities of Substitution and Transformation to Price Elasticities of Import Demand and Export Supply: A Note for CGE Practitioners
title Linking Armington and CET Elasticities of Substitution and Transformation to Price Elasticities of Import Demand and Export Supply: A Note for CGE Practitioners
spellingShingle Linking Armington and CET Elasticities of Substitution and Transformation to Price Elasticities of Import Demand and Export Supply: A Note for CGE Practitioners
Lofgren, Hans
Ciencias Económicas
price elasticities
computable general equilibrium
Armington
constant-elasticity-of-transformation
title_short Linking Armington and CET Elasticities of Substitution and Transformation to Price Elasticities of Import Demand and Export Supply: A Note for CGE Practitioners
title_full Linking Armington and CET Elasticities of Substitution and Transformation to Price Elasticities of Import Demand and Export Supply: A Note for CGE Practitioners
title_fullStr Linking Armington and CET Elasticities of Substitution and Transformation to Price Elasticities of Import Demand and Export Supply: A Note for CGE Practitioners
title_full_unstemmed Linking Armington and CET Elasticities of Substitution and Transformation to Price Elasticities of Import Demand and Export Supply: A Note for CGE Practitioners
title_sort Linking Armington and CET Elasticities of Substitution and Transformation to Price Elasticities of Import Demand and Export Supply: A Note for CGE Practitioners
dc.creator.none.fl_str_mv Lofgren, Hans
Cicowiez, Martín
author Lofgren, Hans
author_facet Lofgren, Hans
Cicowiez, Martín
author_role author
author2 Cicowiez, Martín
author2_role author
dc.subject.none.fl_str_mv Ciencias Económicas
price elasticities
computable general equilibrium
Armington
constant-elasticity-of-transformation
topic Ciencias Económicas
price elasticities
computable general equilibrium
Armington
constant-elasticity-of-transformation
dc.description.none.fl_txt_mv Armington and constant-elasticity-of-transformation (CET) functions are routinely used in computable general equilibrium (CGE) Models to model foreign trade. The CET function is applied to producer decisions about whether to export and or sell at home. Decisions by domestic demanders whether to purchase imports or domestic output are covered by the Armington function. The Armington function is a constant-elasticity-of-substitution (CES) function. This note is concerned with the links between (a) price elasticities of import demand and constant elasticities of substitution between demand for imports and domestic output; and (b) price elasticities of export supply and constant elasticities of transformation between supply to exports and domestic market. These links are important since researchers often may wish to compare estimates of price elasticities to the price elasticities implied by elasticities of substitution and transformation. In this note, price elasticities related to each function are derived from their representation in many CGE models – the function itself and a first-order optimality condition. In an appendix, these representations are derived from cost minimization and revenue maximization given prices and the “technology” embodied by the Armington and CET functions.
Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS)
description Armington and constant-elasticity-of-transformation (CET) functions are routinely used in computable general equilibrium (CGE) Models to model foreign trade. The CET function is applied to producer decisions about whether to export and or sell at home. Decisions by domestic demanders whether to purchase imports or domestic output are covered by the Armington function. The Armington function is a constant-elasticity-of-substitution (CES) function. This note is concerned with the links between (a) price elasticities of import demand and constant elasticities of substitution between demand for imports and domestic output; and (b) price elasticities of export supply and constant elasticities of transformation between supply to exports and domestic market. These links are important since researchers often may wish to compare estimates of price elasticities to the price elasticities implied by elasticities of substitution and transformation. In this note, price elasticities related to each function are derived from their representation in many CGE models – the function itself and a first-order optimality condition. In an appendix, these representations are derived from cost minimization and revenue maximization given prices and the “technology” embodied by the Armington and CET functions.
publishDate 2018
dc.date.none.fl_str_mv 2018-03
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http://purl.org/coar/resource_type/c_8042
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status_str submittedVersion
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dc.language.none.fl_str_mv eng
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Creative Commons Attribution 4.0 International (CC BY 4.0)
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rights_invalid_str_mv http://creativecommons.org/licenses/by/4.0/
Creative Commons Attribution 4.0 International (CC BY 4.0)
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