Sensitivity analysis in an imperfect substitutes model of preferential trade

Abstract

Purpose

The purpose of this paper is to develop a formal representation of the imperfect substitutes model (ISM) of partial equilibrium, trade policy analysis and to conduct sensitivity analysis on the behavioral parameters of the model.

Design/methodology/approach

The paper develops an ISM in a manner that is conformable to more complex, applied general equilibrium models of trade policy analysis.

Findings

The paper presents a set of sensitivity analyses on key behavioral parameters for a better understanding of the model's properties.

Research limitations/implications

Sensitivity analysis on the values of behavioral parameters in ISMs needs to be conducted by trade policy modelers.

Practical implications

The ISM is made more explicit here than in most representations, something that will be of great use to practitioners.

Originality/value

While widely used in trade policy circles, the ISM is rarely explicitly formulated, nor the role of its behavioral parameters explored.

Citation

A. Reinert, K. (2014), "Sensitivity analysis in an imperfect substitutes model of preferential trade", Journal of Economic Studies, Vol. 41 No. 5, pp. 630-643. https://doi.org/10.1108/JES-05-2013-0064