SciELO - Scientific Electronic Library Online

vol.13 issue2Factors affecting forward pricing behaviour: Implications of alternative regression model specificationsApplication of the contingent valuation method to estimate the willingness-to-pay for restoring indigenous vegetation in Underberg, Kwazulu-Natal, South Africa author indexsubject indexarticles search
Home Pagealphabetic serial listing  

Services on Demand



Related links

  • On index processCited by Google
  • On index processSimilars in Google


South African Journal of Economic and Management Sciences

On-line version ISSN 2222-3436
Print version ISSN 1015-8812

S. Afr. j. econ. manag. sci. vol.13 n.2 Pretoria Jan. 2010




Econometric estimation of Armington elasticities for selected agricultural products in South africa



AA OgundejiI; A JoosteII; D UchezubaIII

IDepartment of Agricultural Economics, University of the Free State
IIDepartment of Agricultural Economics, University of the Free State and Market and Economic Research Centre, National Agricultural Marketing Council
IIIDepartment of Agricultural Economics, University of the Free State and Northern Cape Department of Agriculture Accepted January 2010




Price transmission behaviour is used to model the impacts of different trade regimes; if this behaviour is not modelled correctly, the trade impacts can be either under- or overestimated. Due to the lack of elasticities of substitution pertaining to selected imported and domestically produced agricultural products in South Africa, 'Armington' elasticities, using quarterly data from 1995-2006 and three different models, based on the time series properties of the data, are estimated in this paper. Considering the long-run elasticity results, soyabeans (whether broken or not) and meat of bovine animals (frozen) are the most sensitive import products, followed by maize, meat of bovine animals (fresh or chilled), sunflower seeds, and wheat and meslin. Regarding the short-run elasticity, soyabeans are the most sensitive import product, followed by meat of bovine animals (fresh or chilled); meat of swine (fresh, chilled or frozen) is the least sensitive import product.

JEL: F12



“Full text available only in PDF format”




ALSTON, J.M., CARTER, C.A., GREEN, R. & DANIEL, P. 1990. Whether Armington trade models? American Journal of Agricultural Economics, 72(2): 455-467.         [ Links ]

ARMINGTON, P.S. 1969. A theory of demand for products distinguished by place of production. Staff Paper: International Monetary Fund, 16(1): 159-178.         [ Links ]

ARNDT, C., ROBINSON, S. & TARP, F. 2002. Parameter estimation for a CGE model: A maximum entropy approach. Economic Modelling, 19(3): 75-398.         [ Links ]

BURROWS, L.R. 1999. Armington elasticities for the South African mining and manufacturing sectors. Paper delivered at the Biennial Conference of the Economic Society of South Africa, University of Pretoria.         [ Links ]

DAFF. 2009. Abstract of agricultural statistics. Pretoria: Directorate of Agricultural Information Services, National Department of Agriculture, South Africa.         [ Links ]

GALLAWAY, M.P., MCDANIEL, C. & RIVERA, S. 2003. Short-run and long-run industry level estimates of US Armington elasticities. North American Journal of Economics and Finance, 14: 49-68.         [ Links ]

GIBSON, K.L. 2003. Armington elasticities for South Africa: Long and short-run industry level estimates. TIPS Working Paper 12-2003.         [ Links ]

HERTEL, T.W., IANCHOVICHINA, E. & MCDONALD, B.J. 1997. Multi-region general equilibrium modelling. In: J.F. Francois & K. Reinert (eds.) Applied methods for trade policy analysis: A handbook. Cambridge, MA: Cambridge University Press, pp. 3-24.         [ Links ]

KAPUSCINSKI, C.A. & WARR, P.G. 1999. Estimation of Armington elasticities: An application to the Philippines. Economic Modelling, 16: 257-276.         [ Links ]

LLOYD, P.J. & ZHANG, X.G. 2006. The Armington model. Staff Working Paper, Melbourne, Australia: Australian Government Productivity Commission.         [ Links ]

NAUDE, F., VAN DER MERWE, F. & VAN HEERDEN, J. 1999. Estimates of Armington elasticities for the South African manufacturing sector. Journal of Studies in Economics and Econometrics, 23: 41-50.         [ Links ]

OBBEN, J. 1998. The demand for money in Brunei. Asian Economic Journal, 12(2): 109-121.         [ Links ]

OYEWUMI, O.A. 2006. Modelling tariff rate quotas in the South African livestock industry. Unpublished Masters Dissertation. University of the Free State, South Africa.         [ Links ]

PETERSEN, T 1997. An introduction to CGE modelling and an illustrative application to Eastern European integration with the EU. Copenhagen: Institute of Economics, University of Copenhagen.         [ Links ]

REINERT, K.A. & ROLAND-HOLST, D. 1992. Armington elasticities for United States manufacturing sectors. Journal of Policy Modeling, 14: 631-639.         [ Links ]

SHIELLS, C.R. & REINERT, K.A. 1993. Armington models and terms of trade effects: Some econometric evidence for North America. Canadian Journal of Economics, 26: 299-316.         [ Links ]

SHIELLS, C.R., STERN, R.M. & DEARDORFF, A.V 1986. Estimates of the elasticities of substitution between imports and home goods for the United States. Weltwirtschaftliches-Archiv, 122(3): 497-519.         [ Links ]

STERN, R.M., FRANCIS, J. & SCHUMACHER, B. 1976. Price elasticities in international trade: An annotated bibliography. London: Macmillan Press Ltd.         [ Links ]

STEWART, K.G. 2005. Introduction to applied econometrics. (Duxbury applied series) U.S.A: Curt Hinrichs.         [ Links ]

TANG, T.C. 2003. Japanese aggregate import demand function: reassessment from the 'bound' testing approach. Japanese and ,he World Economy 15: 415-436.         [ Links ]

TOURINHO, O., KUME, H. & PEDROSO, A.C. 2003. Armington elasticities for Brazil 1986-2002: New estima,es. Rio de Janeiro: IPEA.         [ Links ]

VAN HEERDEN, J. & VAN DER MERWE, F. 1997. Empirical estimation of elasticities in idc's general equilibrium model. IDC Research Paper Series TS2/1997.         [ Links ]

ZHANG, X.G. 2006. Armington elasticities and terms of trade effects in global CGE models. Staff Working Paper. Melbourne, Australia: Productivity Commission.         [ Links ]



Appendix A

Following Armington (1969) and much of the ensuing literature, it is assumed that consumer utility for goods in a country is separable from consumption of other products, and a simple CES sub-utility function is postulated to model demand for domestically produced and imported goods in that country:

U ( M,D) = α [ ßMσ-1)/σ + (1 - ß) D (σ-1)/σ] (A.1)


U = sub-utility over the domestic and foreign goods

M = quantity of imported goods

D = quantity of domestic goods

σ = constant elasticity of substitution between domestic and imported goods

α and ß = are calibrated parameters in the demand function

Assuming that 'p' equals price, prices of imports and domestically produced goods are denoted as pM and pD. In order to maximise expenditure, prices are made equal to the marginal utility derived from purchasing the associated products so that

Thus, differentiating equation (A.1) with respect to M and D yields the following:


Given that

and then can be rewritten as:

Rearranging A.3 gives

The first-order condition can be rewritten as:

y = a0 + a1(A.5)

Where y = ln(M/D), a0 = σ ln [ß/(1 - ß)], a1 is the elasticity of substitution between imports and domestic sales, and x represents ln(pD/pM).


Appendix B




Creative Commons License All the contents of this journal, except where otherwise noted, is licensed under a Creative Commons Attribution License