The Role of Domestic Production in Import Demand Analysis

This paper studies the relationship among domestically produced and imported melons and vegetables (i.e., fresh onions, fresh tomatoes, spinach, oranges and cantaloupes). The U.S import expenditure, quantity, and price data are collected from the Economic Research Service (ERS). U.S. vegetables and melons consumption data are also collected from ERS. In method one, under the assumption of the separability between domestic and foreign goods, we fit the Rotterdam model to the import data for the selected commodities by country of origin. Conditional import expenditure and price elasticities are calculated. In method two, the same commodities are used as in method one, but consumption of the U.S. produced commodities are included with the imported ones. However, the practical application of this method leads to fewer imported goods from countries of origin. Again the Rotterdam model is fit to the data and conditional expenditure and price elasticities are calculated. Also in this section, we test for weak separability between the domestically produced good and the imported ones. The third method formulates the problem in two-stage procedure. In the first stage, a Rotterdam model is fit to the U.S. domestic consumption data and to total imports of the good. It consists of two equations, demand for the domestically produced good and demand for the imported good as a whole. In the second stage, total import expenditure is allocated among the different country sources. For each stage, conditional expenditure and price elasticities are calculated. Those of the second stage are directly comparable to method one. By proper multiplication between the elasticities of stages one and two, conditional elasticities are calculated that are directly comparable to those of method two.