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Abstract

The purpose of this study is to estimate elasticities of substitution for apples imported from US, New Zealand and Chile. The study also tested the impact of NAFTA on the apple trade using trade data from 1988 to 2004. The assumptions of Armington model are used to model trade flow of apples employing Linear Approximate of Almost Ideal Demand System. NAFTA has a significant affect on the exporters' share of Canadian import market. Further, New Zealand is emerging one of the strong exporters of apples to Canada by gaining most of the share lost by other countries. Import demand of apples in the case of New Zealand and Chile are elastic while just above unit elastic in case of US. Apples imported from New Zealand were complements to those imported from Chile. The elasticities of substitution of New Zealand and Chile are statistically significant and slightly elastic while that of US is insignificant and inelastic. The rest of the world has elastic elasticities of substitution mainly due to the low share in Canadian imports of apples. Homotheticity could not be rejected that has important implications for international trade and CGE modeling. However, more evidence on testing of the Armington assumptions in trade flow investigations of fruits and vegetables are required.

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