Page 121 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.82, # 2, 2025, pp. 117-137

economy into oil, non-oil, and service sectors is particularly important. The findings
could have relevance for applied economic policies of Azerbaijan. Moreover,
econometric results could contribute to the completion of the mosaic of a assessment
of the policy options for Azerbaijan through their integration with the holistic
perspectives of the general equilibrium and trade models of Azerbaijan that are widely
employed by researchers and government bodies, such as the Central Bank of
Azerbaijan.

LITERATURE REVIEW
A large number of studies in the literature focus on the estimation of Armington and
CET functions, employing various methods to estimate these elasticities. Examining
the results, it is evident that these studies have been conducted for different countries
and at various sectoral levels. For example, Saikkonen, L. (2015) estimates Armington
elasticities for multiple sectors of the South African economy using both linear and
non-linear least squares methods, with elasticity values ranging from 0.386 to 1.379.
Ntombela, S., Kalaba, M. and Bohlmann, H. (2018) estimated elasticities using linear
least squares (LS) for South African agricultural products and concluded that, while
agriculture in aggregate is inelastic, individual products show responsiveness to price
changes. For most products, Armington estimates were close to unity, indicating that
agricultural imports are not perfect substitutes for domestic goods. Moreover, export
supply elasticities for grains were higher than those for fruit and meat, suggesting that
domestic grain production is more sensitive to changes in export market prices.
Delahaye, E. and Milot, C. (2020) criticize the practice of using identical elasticities
for all countries in AGE models of international trade, such as the Global Trade
Analysis Project (GTAP). They estimate Armington elasticities for the UK across
various goods and services in agriculture, manufacturing, and services, finding values
between 0.01 and 2.69. These results differ from the parameter values typically used
in the model, highlighting the importance of estimating elasticities for each country
individually.

Bajzik, J.; Havranek, K., Irsova, Z. and Schwarz, J. (2019) analyze 3,524 estimates of
Armington elasticities and investigate the sources of variation among them. The study
finds that data frequency is a major factor contributing to these differences, with
estimates derived from less frequent data tending to be smaller. The authors also note
that estimates based on cross-sectional data are generally larger than those based on
time-series data. Blonigen, B. and Wilson, W. (1999) also estimate Armington
elasticities for various sectors of the U.S. economy and investigate the reasons for
differences in elasticity values across sectors. The study finds that the presence of
foreign-owned affiliates significantly affects flexibility, as multinational companies

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