ON THE ELASTICITY OF SUBSTITUTION IN INTERNATIONAL-TRADE

Attention for biases in the measurement of the Elasticity of Substitution (ES) in applied international trade flow modelling has a long tradition. It was mostly directed at the issue of the acceptability of the (often implicit) assumptions made on the parameters of the underlying demand model. The purpose of this paper is to prove both theoretically and with the help of some numerical examples that another strong potential source of biases in assessing ES's in trade modelling does exist which gained remarkably little attention in the literature, namely, the regional pattern of international trade flows. © 1990 H.E. Stenfert Kroese B.V.