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Modeling Public Policies in Latin America and the Caribbean

image of Modeling Public Policies in Latin America and the Caribbean

The Inter-American Development Bank (IDB) and the Economic Commission for Latin America and the Caribbean (ECLAC) have formed a partnership to promote a regional network of computable general equilibrium (CGE) modellers that facilitates the exchange of analytical findings, techniques and data, with the ultimate objective of better serving policymakers in policy formulation. The regional meetings of CGE modellers, held annually in a different country of the region, have been instrumental in promoting interregional transfer of analytical technologies and in bringing the region closer to international best practices. This book contains a selection of studies discussed in past annual regional meetings on modelling.

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Armington elasticities for Brazil

In this article we estimate substitution elasticities for goods distinguished by place of production, specifying whether they are imported or produced domestically. These are known as the Armington (1969) elasticities and are widely used to assess the impact on the domestic economy of policy changes in countries’ tariff structures; and, in particular, to evaluate the costs and benefits of signing free trade agreements. The sample period for our study is 1986-2002, and the estimation is done separately for each of the 28 industrial sectors specified in the Brazilian input-output table. Special consideration is given to the fact that the data is affected by import restrictions for part of that period, and that foreign trade liberalization occurred in Brazil in 1990. The estimation procedure is automated and takes into consideration the stochastic dynamic properties of the quantity and price series, using the appropriate estimation approach in each case. The Armington elasticities we estimate have the correct sign, and are significant at the 5% level for 20 sectors, at 10% for two sectors, and at 20% for two others. In one sector the estimated value is significant, but has the incorrect sign (negative). For three sectors the estimated elasticity is not significantly different from zero; but these represent only 12% of the average value of total import value in the period 1997-2002. The point estimate of the elasticity of substitution, for the sectors where it is positive and statistically different from zero, varies from 0.16 to 3.6; and its weighted average value is 0.93.

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