XML

Seoul Journal of Economics - Vol. 35 , No. 1
[Paper List] [Go to Volume List]

[ Article ]
Seoul Journal of Economics - Vol. 35, No. 1, pp. 33-58
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2022
Received 20 Nov 2021 Accepted 24 Nov 2021
DOI: https://doi.org/10.22904/sje.2022.35.1.002

Consumer Responses to Price Shocks of Wine Imports in Korea
Chul Chung* ; Min-chirl Chung** ; Bonggeun Kim***
*Chul Chung, Researcher, Korea Institute for International Economic Policy, Tel: 82-044-414-1184 (cchung@kiep.go.kr)
**Min-Chirl Chung, Researcher, Korea Institute for International Economic Policy, Tel: 82-044-414-1154 (mcchung@kiep.go.kr)
***Bonggeun Kim, Corresponding author, Professor, Department of Economics and Korea Bureau of Economic Research and Innovation, Seoul National University, Tel: 82-2-880-6240 (bgkim07@snu.ac.kr)

Funding Information ▼

JEL Classification: D11; D12; F14

Abstract

The main purpose of the study is to develop a methodology that divides consumers’ responses to free trade agreements (FTAs) or commodity taxes into quantitative and qualitative margins, which cause exogenous price changes for certain specific goods. Unlike the usual method of using unit values as a proxy variable for market prices, the use of unit values as a dependent variable for consumers’ qualitative choice showed that qualitative responses to price changes exist, and their size is significant. The methodology of separating and estimating qualitative responses to income changes as in economic crises revealed that many of the existing income effects are qualitative responses. As a key result, the price elasticity of −1.178 estimated by the usual demand model based on a single commodity assumption was reduced to −0.712 for the quantitative margin only, and the qualitative margin was the remaining −0.466, which accounted for more than a third of the overall response. The significant degree of qualitative response estimates suggests that policy makers and researchers should consider qualitative response as an important factor when analyzing the effectiveness of FTAs, especially in consumption.

Keywords: FTA, commodity tax, price elasticity of wine consumption, quality choice, unit value, quality-adjusted price
Acknowledgments

This paper is a revised version of the Korea Institute for International Economic Policy Working Paper 21-01. We would like to thank Hur Jung, Kim Jong Duck, and the two anonymous reviewers for their helpful comments on the KIEP Working Paper. This work was supported in part by the Korea Bureau of Economic Research and Innovation.

References
1. Andalón, M. and Gibson, J. The ‘soda tax’ is unlikely to make Mexicans lighter: New evidence on biases in elasticities of demand for soda, Discussion Paper No. 10765: IZA Institute of Labor Economics, 2017.
2. Berry, S. Levinsohn, J. and Pakes, A. “Automobile Prices in Market Equilibrium,” Econometrica 63 (No.4 1995): 841-890.
3. Chaloupka, F., Peck, R., Tauras, J., Xu, X. and Yerekli, A. Cigarette excise taxation: The impact of tax structure on prices, revenues, and cigarette smoking, NBER working paper, 2010.
4. Chen, N. and Juvenal, L. “Quality and the great trade collapse,” Journal of Development Economics 135 (2018): 59-76.
5. Chung, C., Chung, M. and Kim, B. Consumer Responses to Price Shocks of Wine Imports in Korea, KIEP working paper 21-01, 2021.
6. Cox, T. and Wohlgenant, M. “Prices and quality effects in cross-sectional demand analysis.” American Journal of Agricultural Economics 68 (No.4 1986): 908-919.
7. Deaton, A. “Quality, quantity, and spatial variation of price,” American Economic Review, 78 (No.3 1988): 418-430.
8. Deaton, A. “Price elasticities from survey data: extensions and Indonesian results.” Journal of Econometrics 44 (No.3 1990): 281-309.
9. Deaton, A. The Analysis of Household Surveys: A Microeconometric Approach to Development Policy. World Bank Publications, 1997.
10. Dong, D., Shonkwiler, J. S. and Capps, O. “Estimation of demand functions using cross sectional household data: The problem revisited.” American Journal of Agricultural Economics 80(No.3 1998): 466-473.
11. Fleischer, A. and Rivlin, J. “More or better?: Quantity and quality issues in tourism consumption,” Journal of Travel Research 47(No.3 2009): 285-294.
12. Gibson, J. and Kim, B. “Quality, quantity, and nutritional impacts of rice price changes in Vietnam.” World Development 43.1 (2013): 329-340.
13. Gibson, J. and Kim, B. “Hicksian separability does not hold over space: Implications for the design of household surveys and price questionnaires” Journal of Development Economics 114(No.1 2015): 34-40.
14. Gibson, J. and Kim, B. “Economies of scale, bulk discounts, and liquidity constraints: comparing unit value and transaction level evidence in a poor country,” Review of Economics of the Household 16(No.1 2018): 21-39.
15. Gibson J. and Kim, B. “The price elasticity of quantity, and of quality, for tobacco products,” Health Economics 28(No.4 2019): 587-593.
16. Gibson, J. and Rozelle, S. “The effects of price on household demand for food and calories in poor countries: Are our databases giving reliable results?” Applied Economics 43(No.27 2011): 4021-31.
17. Grogger, J. “Soda taxes and the prices of sodas and other drinks: evidence from Mexico.” American Journal of Agricultural Economics, 99(No.2 2017): 481-498.
18. Jeong, B. The Consumer Welfare Ef fects of FTA and its Policy Implications: Focusing on Chilean Fresh Grapes, Inha University, 2015.
19. Hwang, M. Y. and Lee, H. “A Study on the Trade Effects of Korea-Chile FTA in the Case of Korea’s Wine Import,” Journal of International Trade and Industry Studies 21(No.4 2016): 1-31.
20. Kim, D., Yun, M., Kim, M., Sung, W., and Chun, S., “The Price Elasticity on Alcoholic Beverages in Korea,” Journal of Korean Alcohol Science, 16(No.1 2015):41-53.
21. Korea Consumer Agency. Survey and Analysis on the Consumer Welfare Experience of FTAs, Seoul: The Korea Consumer Agency, 2019.
22. Kwark, N. and Lim, H. “Price Stabilizing Effects of the FTAs: The Case of Korea,” Kukje Kyungje Yongu 24(No.4 2018): 1-28.
23. Lee, B., Song, J., Moon, H., Chung, D., and Park, H. Welfare Analysis of Economic Agents and Distribution Analysis of Major Imported Agricultural Products after FTA, The Korea Rural Economic Institute, 2013.
24. Lee, J. “An Analysis on the Purchase Effect for FTA Effectuation Countries Product of Korean Consumer,” Korea Trade Review 38(No.5 2013): 437-457.
25. McKelvey, C. “Price, unit value and quality demanded.” Journal of Development Economics 95(No.1 2011): 157-169.
26. McKenzie, D., Schargrodsky, E., and G. Cruces (2011) “Buying less but shopping more: The use of nonmarket labor during a crisis,” Economía, 11(No.2 2011): 1-43.
27. Park, J. and Capps, O. “Demand for prepared meals by U.S. households.” American Journal of Agricultural Economics, 79(No.3 1997): 814-824.
28. Prais, S. and Houthakker, H. The analysis of family budgets, New York: Cambridge University Press, 1955.
29. Saenz de Miera Juarez, B., Reynales-Shigematsu, L. M., Stoklosa, M., Welding, K. and Drope, J. “Measuring the illicit cigarette market in Mexico: a cross validation of two methodologies” Tobacco Control 30 (No.2 2021):125-131.
30. Selvaraj, S., Srivastava, S. and Anup Karan, A. “Price elasticity of tobacco products among economic classes in India, 2011-2012,” BMJ Open 5(No.12 2015), doi: 10.1136/bmjopen-2015-008180.
31. Suh, Jin Kyo, Chung, Chul, Lee, J. W., and Jeong, Y. S. Empirical Analysis of Trade Liberalization: The Benefits to Korean Consumers, Seoul: The Korea Institute for International Economic Policy, 2013.
32. Zhen, C., Wohlgenant, M. and Kama, S. “Habit formation and demand for sugar-sweetened beverages,” American Journal of Agricultural Economics 93(No.1 2011):175-193
 

Editorial Office, Seoul Journal of Economics, Institute of Economic Research, Seoul National University 599 Gwanangno, Gwanak-gu, Seoul 151-746, Korea
Tel: +82-2-880-5434 | Fax: +82-2-888-4454 | E-mail: sje@plaza.snu.ac.kr
Copyright (c) 2020 SJE. All rights reserved.