Estimate of Armington substitution elasticity for fishery products in Iran

Abstract Nowadays, fishery and aquaculture products form an important fraction of the protein requirement and food of many people on the earth. The hike in prices of these essential products seems necessary owing to the increase in demand and consumption of these products in the country. The price transmission from the international market to the domestic market of tunas was  investigated in the present research. For this purpose, the elasticity of substitution between tunas imports with goods produced in Iran (Armington Elasticity) was calculated. Armington  elasticity reflects a degree of substitution between commodities produced domestically and those produced  abroad. A greater elasticity indicates that buyers did not discriminate between domestic and foreign produced commodities and the buyers considered them same. Therefore, any policy to influence the price of imported commodities will be effective in regulating the prices of commodities produced domestically.  In the present study, in order to calculate the Armington elasticity, the annual data for the year’s between1974 - 2014 was used along with the technique of maximum entropy (ME). In addition to Armington elasticity, the least square estimated and vector error correction model (ECM) were estimated using entropy maximization. The results showed that Armington tension in the long-term was greater than that in the short-term. Even though this means the product has been imported, it however serves as an alternative for domestically produced commodities; therefore, buyers do not  see any difference between them. Additionally, the prices of these products have been affected by global prices and  the swings in global prices can be transported  more easily in the long-term than in the short-term to the internal market for these products.