MODELING A FREE TRADE DEMAND SYSTEM: THE CASE OF THE S.KOREAN BEEF MARKET

Transcription

1 MODELING A FREE TRADE DEMAND SYSTEM: THE CASE OF THE S.KOREAN BEEF MARKET Young-Jae Lee & Lynn Kennedy Lousana State Unversty, AgCenter Deartment of Agrcultural Economcs and Agrusness

2 Motvaton Prce dfference for trade and rce convergence wth trade Why do rces dverge under free trade? Consumer reference

3 Leralzaton of S.K. Beef Maret A State Tradng Enterrse: untl 1988 Quota: untl 000 Leralzaton: from 001 wth a 40% tarff - U.S./S.K. Free Trade Agreement n 007

4 Imorts/Prce Dfference MT $/g Imorts Prce dfference Sources: Nonghyu htt://lvestoc.nonghyu.com/common/r/r100.s

5 Oectves To analyze the exstng state of South Korean eef maret y usng a free trade demand model To dentfy rce effect and consumer reference effect on eef demand n S.K. eef maret

6 Lterature Revew Economc Theory - Arthur Lewel (1996) - Asche, Salvanes, and Steen (1999) - Stehan von Cramon-Tauadel (1991) Econometrc Estmaton - McGur, Drscoll, Alwang, and Haung (1995)

7 Free Trade Demand Model Fve maor eef sulers: S.K., U.S., Australa, Canada, and New Zealand Drect Demand Euaton Inverse Prce Euaton a B A B A a B 1

8 Free Trade Demand Model Consumer/Producer Surlus Economc Welfare Functon a CS 1 c PS c a EWF 1

9 Free Trade Demand Model c Q EWF Q EWF Q 3 1 a a, 1, 3 '

10 Emrcal Estmaton: Data Monthly uantty and rce data from January 1995 to Decemer 004 Domestc uantty data were otaned from Nonghyu Imorted uantty data were collected from Korean Customs Servces South Korean eef retal rce data were otaned from monthly consumer rce ndex announced y the Korean Statstcal Informaton Servce The Decemer 004 nomnal rce was used as a reference rce to transform the ndex to rce Because retal rces for morted eef were not avalale, morted eef rces were otaned from addng tarff and maru ayments to unt value of morts

11 Emrcal Estmaton: Mssecfcaton Tests s us au ca nz Euaton-y-euaton tests were used to test for mssecfcaton of each euaton n the free trade demand system In the ntal tests, ths study met serous volaton wth resect to the statstcal rosectve In order to solve the rolems of as and nconsstency of the model, ths study elmnated extreme outleres, the data were rearranged wthout tme order, and weghted regresson were used After ths remedy, a comrehensve set of mssecfcaton can e reduced

12 Emrcal Estmaton: Mssecfcaton Tests s us au ca nz s us au ca nz Before Model Resecfcaton Normalty <.0001 <.0001 Functonal Form < <.0001 Heterosedastcty <.0001 < <.0001 Autocorrelaton <.0001 < < Parameter Stalty <.0001 < < After Model Resecfcaton Normalty Functonal Form < Heterosedastcty Autocorrelaton Parameter Stalty

13 Emrcal Estmaton s us au ca nz Q s us au ca nz

14 Role of Consumer Preference a Π γ a > a a γ > 1 γ = 1 γ < 1 γ a < a Π u 0 a /

15 Role of Consumer Preference: Cross Preference Effect Π Π 1 0 Π Π

16 Role of Consumer Preference: A Weghted FTDS Q 3 1 a a, 1, 3 '

17 Consumer Preference Effects on Maret Demand Q A, 3 Q B,

18 Emrcal Preference Effect on Maret Demand ˆs ˆ us ˆ au ˆ ca ˆ nz s us au ca nz

19 Conclusons s us au ca nz South Korean eef consumers are not senstve to change n rce of each source-dfferentated eef excet for New Zealand eef All four foregn sourced eef roducts were shown to e susttutes for South Korean eef. In artcular, U.S. eef were shown to e the strongest susttutale good for South Korean eef ecause the cross rce elastcty of U.S.eef was shown to e the largest one among four cross rce elastctes Related to role of consumer reference, the results confrmed that U.S. eef can extend ts maret share wth ncreasng South Korean eef consumer reference for U.S. eef. Ths result mght mly that the exstng consumer reference for U.S. eef was relatvely underestmated, esecally, ecause of mad cow dsease reorted n 003.

20 Than You!