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Abstract
Elasticities of substitution, often called Armington elasticities, reflect incomplete substitutability
because of perceived product characteristics. This study divides the determinants
of the Japanese demand for beef imports into two factors: (i) substitution
elasticity and (ii) country-of-origin bias, and demonstrate how these measurements are
associated with trade policy and food scare events. The Japanese beef industry serves
as a case study to evaluate the multifold impact of import liberalisation and a series of
bovine spongiform encephalopathy (BSE) outbreaks. A time-varying parameter model
is used to shed light on the dynamic effects of the import liberalisation and BSE outbreaks
on the measurements. The estimation results reveal that the estimated substitutability
and country-of-origin bias are very sensitive to the BSE cases, but not to the
process of trade liberalisation. The results also confirm that as a result of the BSE outbreaks,
the major factor of the Japanese demand for beef imports has changed from
relative prices to the country-of-origin effect, thereby emphasising the importance of a
traceability system and promotional activities, which would help in the formation of
the country-of-origin effect.