Upstream, Downstream: An Estimation of Armington Elasticities at Different Stages of Production

This paper uses panel data on variation in trade costs to estimate elasticities of substitution for NAICS industries and Harmonized System (HS) products. I build on previous studies that estimate these elasticities by computing elasticities both for upstream and downstream products. Results show that upstream elasticities are higher than downstream elasticities, indicating that upstream product groups are more substitutable for one another than downstream product groups. Highly aggregated downstream product groups have a lower elasticity of substitution than less aggregated downstream product groups, but this pattern is more ambiguous for upstream goods. Upstream goods and downstream goods both display some signs of aggregation bias, although this bias is more pronounced in HS products than in NAICS industries.