The demand for domestic and imported alcoholic beverages in Ontario, Canada: a dynamic simultaneous equation approach

The purpose of this paper is to estimate simultaneously dynamic demand functions and, consequently, income and price elasticities for domestic and imported alcoholic beverages for the province of Ontario. The methodology used is the almost ideal demand system, originally developed by Deaton and Muellbauer (1980), augmented by Pollak's (1970) habit formation hypothesis. The empirical application uses time series (1958-1987) for imported and domestically produced spirits, wine and beer. The findings provide strong support favouring the dynamic version of the almost ideal demand system over its static alternative, but little evidence of strong substitution between domestic and imported products.