Estimating the Substitution Elasticities of Import of Manufacturing Industries Using Micro Data

The process of integration and convergence of countries over the past two decades has moved in the direction that countries must be forced to join this process, and this requires recognizing the strengths and weaknesses during the transition to trade integration. Accordingly, it is necessary to properly explain the phenomenon of trade integration and the factors affecting it in order to achieve the highest levels of integration. These factors include elasticity of substitotion, economic complexity, border effects, and other factors. Therefore, estimating the imported products elasticity of substitotion is a key parameter for analyzing trade policies, especially those related to trade integration. In this study, the Armington substitution elasticities were estimated for 103 industries in the period 1992-2017. According to the results; the industries with the highest positive elasticities of substitution, are the “manufacture of malt liquors and malt” and the “manufacture of basic chemicals, except fertilizers and nitrogen compounds” and industries with the lowest positive substitution elasticity are, respectively “tanning and dressing of leather” and “building and repairing of pleasure and sporting boats except ships”. Accordingly, in industries with positive substitution elasticity, it is possible to replace foreign goods with domestically produced goods.