THE PRODUCTION THEORY APPROACH TO IMPORT DEMAND ANALYSIS: A COMPARISON OF THE ROTTERDAM MODEL AND THE DIFFERENTIAL PRODUCTION APPROACH

Abstract

Results indicate that, when comparing the unconditional derived-demand elasticities to the unconditional consumer demand elasticities, significant differences emerge due to the differences in the first-stage estimation procedure between the differential production approach and the Rotterdam model. In comparing the consumer demand price/corss-price elasticities to the derived-demand price/cross-price elasticities, it is clear that use of the Rotterdam model when a production approach should be used can lead to overestimation, underestimation, and incorrect signs in deriving unconditional price effects.dairy, demand, imports, international, production, Rotterdam, trade, Demand and Price Analysis, D12, D24, F10, F14, Q17,