On estimating Armington elasticities for Japan's meat imports

Abstract

By fully accounting for the distinct tariff regimes levied on imported meat, we estimate substitution elasticities of Japan's two-stage import aggregation functions for beef, chicken and pork. Although the regression analysis crucially depends on the price that consumers face, the post-tariff price of imported meat depends not only on ad valorem duties but also on tariff rate quotas and gate price system regimes. The effective tariff rate is consequently evaluated by utilising monthly transaction data. To address potential endogeneity problems, we apply exchange rates that we believe to be independent of the demand shocks for imported meat. The panel nature of the data allows us to retrieve the first-stage aggregates via time dummy variables, free of demand shocks, to be used as part of the explanatory variable and as an instrument in the second-stage regression.