Japan–Korea Trade Liberalization Revisited:The Role of Armington Elasticities

Discussion Papers

No.665

by Jiyoung KIM, Satoshi NAKANO, Kazuhiko NISHIMURA

April 2017

ABSTRACT

The elasticity of substitution between foreign and domestic products, i.e., Armington elasticity, is measured by way of two-state calibration according to the temporally distant observations of the market shares, and associated price changes. Along with the sector-wise multifactor CES elasticity estimated using the linked input-output tables, we integrate domestic production of the two countries (Japan and the Republic of Korea) with bilateral trades and construct a bilateral general equilibrium model. Thereupon, we perform an economic assessment of trade liberalization between the two countries.

Keywords: Linked Input-Output Tables, Two-state Calibration, Tariff Elimination,
JEL classification: D57, D58, F24

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