Estimating Armington Elasticities in Major Beef Importing Countries by Bayesian Hierarchical Linear Model

베이지안 계층 모형을 이용한 주요 쇠고기 수입국 Armington 탄성치 추정

Trade elasticities are critical for price or structural change analysis. The Armington demand model is a common approach in the international trade field. We use the Armington demand model to estimate trade elasticities, the country-of-origin bias, and the impact of the U.S. BSE outbreak on preferences. Our OLS estimation results show that the model generates theoretically wrong signs, including a positive impact of U.S. BSE on other countries’ demand for imported beef. Results of a Bayesian hierarchical model show that import demand of countries that tend to import more beef from the U.S., such as Japan, Canada, Korea, and Russia, are affected more by the U.S. BSE outbreak than countries, such as the EU that tend not to import from the U.S. The results show that consumers increase their preference for domestically produced beef over imported beef during the U.S. BSE outbreak. In addition, the results show that the Bayesian estimation can be useful when the OLS results in wrong signs or magnitude based on economic theory.