Import demand estimation with country and product effects : application of multi-way unbalanced panel data models to Lebanese imports

This paper revisits the issue of estimating import demand elasticities, by considering a variety of unobserved components in international commodity transactions. We use individual importers data on a highly disaggregated basis for a single importing country, Lebanon, to estimate a flexible AIDS demand model incorporating a multi-way error component structure for unbalanced panel data. This framework is shown to accommodate for product, country, and time effects as separate unobserved determinants of import demand. Concentrating on major agricultural commodities, results show that the devised empirical specification is mostly supported by the data, and that no correlation exists between import prices and unobserved product or country effects.