Abstract
Price transmission behaviour is used to model the impacts of different trade regimes; if this behaviour is not modelled correctly, the trade impacts can be either under- or overestimated. Due to the lack of elasticities of substitution pertaining to selected imported and domestically produced agricultural products in South Africa, ‘Armington’ elasticities, using quarterly data from 1995-2006 and three different models, based on the time series properties of the data, are estimated in this paper. Considering the long-run elasticity results, soyabeans (whether broken or not) and meat of bovine animals (frozen) are the most sensitive import products, followed by maize, meat of bovine animals (fresh or chilled), sunflower seeds, and wheat and meslin. Regarding the short-run elasticity, soyabeans are the most sensitive import product, followed by meat of bovine animals (fresh or chilled); meat of swine (fresh, chilled or frozen) is the least sensitive import product.
Highlights
The economic evaluation of, for example, trade liberalisation requires complex models that can take different forms and are based on economic theory
In these models, changes in trade regimes and tariffs alter the domestic price of imported goods relative to that of the domestically produced goods, and such changes in relative prices affect the share of the demand which is supplied by imports
One needs estimates of the elasticity of substitution between goods differentiated by their place of origin to properly measure how, for example, a more liberal trade policy regime will affect a domestic industry
Summary
The economic evaluation of, for example, trade liberalisation requires complex models that can take different forms and are based on economic theory. Of particular importance in computable partial and general equilibrium models used to model the impacts of different trade regimes are the behavioural functions that govern the interactions between different variables. One needs estimates of the elasticity of substitution between goods differentiated by their place of origin to properly measure how, for example, a more liberal trade policy regime will affect a domestic industry. This elasticity is formally known as the Armington elasticity
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