Modeling Trade Flows and Market Shares: A Modified Armington Procedure for Rice
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The Armington procedure has become increasingly popular in agricultural trade analyses. However, some arguments have arisen concerning the relevance of using the procedure for agricultural trade analyses. This study examines the assumptions commonly made when using the Armington procedure. The results of this research on rice trade suggest that the Armington procedure needs some modification in modelling agricultural trade and that the assumptions of the single constant elasticity of substitution and homotheticity, in particular, may not be appropriate for analyzing agricultural trade. Further, results of a modified Armington procedure indicate that rice exports are highly competitive and that change in market shares of individual exporters are not independent of change in budget expenditure allocated to imports.