Macroeconomic Import Functions with Imperfect Competition. An Application to the EC Trade

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Macroeconomic Import Functions with Imperfect Competition. An Application to the EC Trade

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Oliveira-Martins, Joaquim
Toujas-Bernate, Joel

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Joaquim Oliveira Martins

Abstract

This paper analyses the consequences for the standard import allocation models of assuming monopolistic competition on the supply side. Together with relative prices, this requires additional variables to capture product differentiation effects. To this end, we derive a composite price index from a nested CES-translog demand system. Our empirical work is twofold: first, we try to assess the long-term relationship between market shares and relative prices by using a cointegration technique, and second, we estimate the demand system for domestic, European and foreign products in the main European markets. The results show that a composite price index, integrating product differentiation, tends to perform better than pure price effects alone in a significant number of cases. We use the estimation results to assess the impact of a potential homogenization of tastes over European markets, after the `1992' integration process.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 707.

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Date of creation: Jul 1992
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Handle: RePEc:cpr:ceprdp:707

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Find related papers by JEL classification:
C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
F15 - International Economics - - Trade - - - Economic Integration
F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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Antoine Magnier & Joël Toujas-Bernate, 1994. "Technology and trade: Empirical evidences for the major five industrialized countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(3), pages 494-520, September. [Downloadable!] (restricted)

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