Estimating import demand in the presence of seasonal trade and unobserved prices

Estimating import demand is particularly difficult when trade is seasonal because prices do not exist for observations with no recorded transaction. Fresh apple imports in the United Kingdom provide a perfect case of this particular problem due to periodic trade. In this study, the differenced version of the almost ideal demand system is employed for estimating import demand by source and an iterative procedure is developed for deriving choke prices (prices at which imports are zero) and import demand estimates. The appeal of this procedure is that the final estimates and choke prices are not sensitive to the starting values used for the initial estimation. When comparing the results of the choke price procedure to a more traditional approach of eliminating zeros by aggregating across countries, significant differences emerge. Results clearly show that the aggregate estimates do not adequately reflect the pattern of UK imports from seasonal suppliers.