Demand Elasticity of Processed Food Exports from Developing Countries: A Panel Analysis of US Imports

Abstract

AbstractThere has been a growing emphasis in resource‐rich developing countries on promoting processed food exports as part of their export expansion and diversification strategy. A key issue for this strategy is whether global market conditions are conducive for significant trade gains. We estimate price and income elasticities of demand for processed food exports from developing countries using a new quarterly panel dataset for the United States, the major market for these products, over the period 1992–2018. Our findings indicate that demand for processed food imports from developing countries has high‐income elasticity combined with low‐price elasticity. The implication is that expansion of imports is driven by demand expansion driven by income growth which counterbalances any possible negative impact of an increase in relative prices. Income elasticity of demand for processed food imports is much higher than that for unprocessed food imports, reflecting preferences for processed food.