Estimates of U.S. Regional Commodity Trade Elasticities of Substitution

Countries and regions within countries frequently import and export from the same standard industrial classification (SIC) groupings. In describing international trade, the Armington assumption recognizes that imported goods may substitute imperfectly for domestically produced goods. Imports and domestically produced goods may differ in quality or composition. Elasticities of import substitution have been extensively estimated for international trade but limited information is available on elasticities of substitution for regional imports. One h ypothesis in the literature is that international trade elasticities should be considered as lower bounds for regional trade elasticities presumably because of fewer non-price trade restrictions. This research estimates regional elasticities of import substitution for 20 two-digit groupings using commodity trade date in the U.S. The range in elasticities is from 0.45 to 2.80 depending on the characteristics of the SIC grouping. These results tend to refute the hypothesis that international trade elasticities are lower bounds for regional trade elasticities for comparable goods