Affordable Access

THE POTENTIAL FOR HIGH-VALUE AGRICULTURAL PRODUCTS UNDER THE NORTH AMERICAN FREE TRADE AGREEMENT: THE CASE OF BEEF IN MEXICO AND CANADA: COMMENT

Authors
Disciplines
  • Economics
  • Mathematics

Abstract

elka090.tmp Journal of Agricultural and Applied Economics, 28,2(December 1996):453–454 O 1996 SouthernAgricultural Economics Association The Potential for High-Value Agricultural Products Under the North American Free Trade Agreement: The Case of Beef in Mexico and Canada: Comment Jong-Ying Lee and Mark G. Brown In his recent article, Onianwa used the absolute price version of the Rotterdam demand model to estimate Mexican and Canadian import demands for U.S. beef products. The specification of the Rotterdam model allows straightforward testing of the basic theoretical properties of demand. Based on theory, a system of demand equations should obey adding up, homogeneity, symmetry, and negativity (Theil 1971, 1975; Deaton and Muellbauer). Adding up is guaranteed or automatically satisfied in the Rotterdam model and other similar demand models like the almost ideal demand system (AIDS). Hence, adding up cannot be tested. Negativity can be checked by calculating the eigenvalues of the Rotterdam Slutsky matrix (all eigenvalues should be nonpositive). The remaining two properties, homogeneity and symmetry, can be straightforwardly tested by using the likelihood ratio test, as in the present paper, or the Wald or Lagrange multiplier tests; homogeneity can also be tested separately for each demand equation using the F-test. Unfortunately, in Onianwa’s specification of the Rotterdam model, prices were incorrectly deflated [see equation (5), p. 379, in Onianwa’s article] for testing homogeneity and symmetry. Below, we will demonstrate that deflating prices by a price or price index outside the Rotterdam demand system, such as the consumer price index (CPI), results in The authors are research economists with the Econom- ic Research Department,Florida Departmentof Citrus, at University of Florida, Gainesville. incorrect tests of the homogeneity and symmetry hypotheses, and is unnecessary when homogeneity restrictions are imposed. First, we show how deflation of prices and income occurs i

There are no comments yet on this publication. Be the first to share your thoughts.