The Elasticity of Substitution between Domestic and Foreign Goods: A Quantitative Survey

Abstract

A key parameter in international economics is the elasticity of substitution between do- mestic and foreign goods, also called the Armington elasticity. Yet estimates vary widely. We collect 3,524 reported estimates of the elasticity, construct 34 variables that reflect the context in which researchers obtain their estimates, and examine what drives the hetero- geneity in the results. To account for inherent model uncertainty, we employ Bayesian and frequentist model averaging.