Armington elasticities for energy policy modeling: Evidence from four European countries

Abstract

Elasticities of substitution among imports and competing domestic production (Armington elasticities) play an important role in computable general equilibrium (CGE) assessments of energy and climate policy. This paper provides estimates of Armington elasticities for 15 commodity groups in four European countries. Since Armington elasticities are found to be rather low on average, researchers may want to reconsider the device of using high values of Armington elasticities in CGE models to avoid unrealistic competitiveness effects or emission leakage rates associated with energy or carbon taxes or other forms of energy-related regulation. Estimated elasticities tend to be higher in the case of machinery and other investment goods than in the case of primary products, ores and chemicals, as well as consumer goods.