The Role of Exchange Rates on Country-Differentiated Demand: The Case of United States Tomatoes

Abstract

We develop a framework to incorporate exchange rates into a differential demand system and apply it to U.S. demand for fresh tomatoes by country of origin. We find evidence of incomplete exchange-rate pass-through involving Mexico. Results indicate that accusations of dumping by American agricultural groups in 1995Ð1996 coincide with the appreciation of the U.S. dollar against the peso in 1994Ð1995. Traditional modeling approaches that do not account for exchange-rate effects would not capture the distinction between dumping and changes in relative prices, leading to the conclusion that too many tomatoes were being imported from Mexico.

Keywords

• differential demand systems
• dumping
• exchange-rate pass-through
• international trade
• mexico
• nafta
• suspension agreements