Estimation of the income and price elasticities of U.S. demand for apparel imports from Mexico and the rest of the world in aggregate and by MFA fiber classifications

The purpose of this research was to estimate the income and price elasticities of U.S. demand for apparel imports from Mexico and the rest of the world in aggregate and by fiber categories commonly used in bilateral negotiation of trade agreements under the Multifiber Arrangement. In addition, elasticities of demand were also estimated for aggregate 9802 and Special Regime imports from Mexico, categories which have been afforded preferential tariff and quota treatment. Secondary data from a variety of government and industry sources were used to estimate U.S. demand for apparel imports. Monthly time series data for the period January, 1983, through September, 1991, were used to estimate U.S. demand for aggregate apparel imports and imports of cotton, man-made, and wool fibers from both Mexico and the rest of the world. Time series data used in estimating U.S. elasticities of demand for 9802 and Special Regime apparel imports from Mexico covered the time period January, 1983, through December, 1989. Two single equation, double log-linear models were used to estimate the elasticities of demand. Ordinary least squares and generalized least squares regression techniques were employed in the estimation process. Based on the economic theory of consumer demand, U.S. demand for apparel imports was hypothesized to be a function of disposable consumer income, relative prices, and a proxy variable representing consumer tastes and preferences. Results of the empirical analysis, in general, supported a priori expectations, and most parameter estimates were of the anticipated signs and statistically significant. The findings of this research contributes to empirical study of U.S. demand for apparel imports and will be of value in further analysis of U.S. trade policy as negotiation of the Uruguay Round of the General Agreement on Tariffs and Trade proceeds, discussion of elimination of the Multifiber Arrangement continues, and implementation of the North American Free Trade Agreement is undertaken.