Q2. What is the way to remove home bias from preferences?
To remove home bias from these preferences in the CES case suggests allowing CES shareparameters to become uniform (0.5 for each of XD and XF in this case) and the elasticity of substitution to approach infinity so that XD and XF are perfect substitutes in preferences.
Q3. What is the effect of biases in preference for country level goods in the U.S?
The presence of biases inpreferences for country level goods generates a border effect of 69.59, biases in Canadian regions only36.29, the U.S. 2.23, and the ROW 0.63.
Q4. What is the way to remove trade bias from the model?
Instead of directly setting share parameters to values which researchers assert will remove anyelement of trade or border effect in model generated results, the authors adopt an approach of first constructing a model parameterization consistent with the absence of such effects.
Q5. What is the gravity model for trade?
The gravity model predicts that, on average combined, Canadian internal and international trade should be overwhelmingly North-South.
Q6. What does the presence of biases in preferences have on the border effect?
The presence of biases in preferences over two other Canadian region goods has only asmall effect on the border effect, as does biases in preferences in both the U.S. and ROW.
Q7. What does the effect of country biases in the U.S. and the ROW?
This suggests that regional biases also play a central role in the determination of border effects, since the border effect is transformed into a reverse border effect.
Q8. What is the definition of home bias in trade literature?
Hillberry (2002) shows that the Canada-U.S. border effect varies across commodities and afterHome bias in trade literature is usually taken to refer to model features and parameterizationsreflected in bias in preferences in favor of home produced over foreign produced goods.
Q9. What is the definition of home bias?
He assumes linear demands for goods which are not based on utility maximizing behavior and uses the term home bias to justify additional linear demand based on the difference between world and domestic production.
Q10. What does the border effect of biases in the U.S. and Canada mean?
These results also suggest that the presence of the biases for different foreign country goods in allregions collectively reduces the border effect, among which biases in Canadian regions and the ROWhave almost no impacts while biases in the U.S. reduces the border effect.
Q11. How does the border effect affect the price of goods?
Anderson and van Wincoop (2003) relate their discussion of Armington and gravity models to the border effect, showing that McCallum’s regression misses relative price effects involving third countries as bilateral border effects are reduced.
Q12. What is the elasticity of substitution between foreign and domestic goods in the region s?
siα is the first-stage Armington share parameter, six is region s’sconsumption of goods supplied by country i; and sσ (=1/(1- sρ )) is the elasticity of substitution betweenhome and foreign goods in region s.Each of the five regions maximizes top level utility subject to the budget constraint.
Q13. How much of the transportation costs for global trade are estimated by Anderson and van Wincoop?
Anderson and van Wincoop (2004) provide a comprehensivereview of this issue and transportation costs for global trade are roughly estimated by them to be around20% of import values.