Import demand with product differentiation: disaggregated estimation of italian sectoral elasticities.

Abstract

This paper focuses on the estimation of sectoral import demand for Italy with European Union Countries, Japan, Canada and the United States. A strong evidence of two-way flows and product differentiation is an accepted regularity of the international trade. Given that, we have tried to include considerations of differentiation in the empirical analysis. Starting from the very disaggregated bilateral trade data (5 digit Sitc Rev. 3) we have classified every and each flow as homogeneous, quality differentiated and non-quality differentiated, using the methodologies developed by Abd-El-Rahman (1986) and Freudenberg and Müller (1992). Then we have included this classification in our econometric estimates of the sectoral import demands. That should increase precision of the estimate, because allow to divide homogeneous from not homogeneous goods in the estimation procedures. Our results suggest a dynamic reaction of italian imports in many sectors, pointing to possible competitive problems for the firms and external balance constraint for the country.