On estimating Armington elasticities for Japan's meat imports

TL;DR

This paper estimates Armington elasticities for Japan's meat imports by accounting for complex tariff regimes and using transaction data to address endogeneity, providing more accurate substitution measures.

Contribution

It introduces a method to estimate import elasticities considering detailed tariff structures and employs transaction data to mitigate endogeneity issues.

Findings

Effective tariff rates are crucial for accurate elasticity estimation.

Use of transaction data improves the reliability of the estimates.

Panel data techniques help control for demand shocks.

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. While 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 utilizing 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.