ESTIMATION OF ELASTICITY OF SUBSTITUTION FOR VARIETIES IN INDUSTRIAL SECTOR IN JAPAN

Abstract

Elasticity of substitution is a crucial parameter of spatial computable general equilibrium analysis. This paper estimates the parameters for 12 industrial sectors in Japan. The elasticity parameter is based on monopolistic competition concept used in new economic geography field. We apply three econometric methodologies, logged OLS, Poisson pseudo maximum likelihood and nonlinear least square, to Japanese inter-regional trade data. Although the estimated values show slight differences between the methodologies, the relationship of magnitude of the estimates among sectors are almost similar in all methodologies.