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How Does the Share of Imports Change During Structural Adjustment?

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  • Alan A. Powell

Abstract

Estimating the price responsiveness of market shares during a period of structural transition requires a distinction to be made between responses to variables explicitly recognized in the model and those due to more general changes in the trading environment. Often the latter are minimally modelled as market penetration curves taking the form of a sigmoid trend. Broadly this is the approach followed in the present paper; however, the trend 'parameter' capturing ultimate market share at a fixed level of price competitiveness is itself made a logistic function of the relative price variable measuring such competitiveness. The application of the model is to quarterly data on the share of imports in Australian personal consumption over the 1980s and the first half of the 1990s. Most of the signal relevant to price competition between domestic and imported consumer goods occurred over the four years 1985-1988. This coincided with sizeable movements in the real exchange rate; and therefore, presumably, with collinear movements in the prices of the components within the domestic and the imported aggregates, which would be favourable circumstances for the application of Hicks' composite commodity idea. The responses in aggregate market shares during this episode suggest a very long-run Armington elasticity in the range 3.4 to 4.8, with short-run (quarterly) values of 0.6 to 0.8.

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Bibliographic Info

Paper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number op-86.

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Date of creation: Aug 1997
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Handle: RePEc:cop:wpaper:op-86

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Related research

Keywords: import substitution; Armington elasticity; consumption; structural adjustment; logistic function; market penetration curve;

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  1. Giles, D. E. A. & King, M. L., 1978. "Fourth-order autocorrelation : Further significance points for the Wallis test," Journal of Econometrics, Elsevier, vol. 8(2), pages 255-259, October.
  2. Chris M. Alaouze & John S. Marsden & John Zeitsch, 1977. "Estimates of the Elasticity of Substitution Between Imported and Domestically Produced Commodities at the Four Digit ASIC Level," Centre of Policy Studies/IMPACT Centre Working Papers o-11, Victoria University, Centre of Policy Studies/IMPACT Centre.
  3. Fry, Jane M. & Fry, Tim R. L. & McLaren, Keith R., 1996. "The stochastic specification of demand share equations: Restricting budget shares to the unit simplex," Journal of Econometrics, Elsevier, vol. 73(2), pages 377-385, August.
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