Import Demand with Product Differentiation: Disaggregated Estimation of Italian Sectoral Elasticities
This paper estimates sectoral demand functions for Italian imports from European Union countries, Japan, Canada and United States. Evidence of two-way flows and product differentiation is an accepted regularity of international trade. We have tried to include considerations of differentiation in the analysis. Starting from very disaggregated bilateral trade data (5 digit Sitc Rev. 3) we have classified each flow as homogeneous, quality differentiated or non-quality differentiated. Then we have used this classification in the estimate of sectoral import functions. That should increase precision, because avoids pooling homogeneous and differentiated goods in estimation. Our results suggest a very dynamic reaction of Italian imports in many sectors, pointing to possible competitive problems for firms and trade balance constraint for the country.
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