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Abstract

We econometrically estimate consumer demand for dairy products in Japan using time series data for 1960-2003. We identify economic, cultural, and demographic forces that have been influencing dairy consumption patterns. We use the Almost Ideal (AI) Demand System by Deaton and Muellbauer and its variant, the Semiflexible Almost Ideal (SAI) Demand System developed by Moschini to impose concavity locally by reducing the rank of the Hessian of the expenditure function. We estimate three specifications: a full system comprising of four dairy products (fluid milk, powder milk, cheese, and butter), and an allother-goods aggregate; a subsystem for food made of four dairy goods and an all-other-food aggregate; and a sub-system of the four dairy products. The minimum distance estimator is used to estimate the demand system. We find that expenditure responses are positive, except for butter demand; own-price responses are large in absolute value; and non-price factors are important determinants of Japanese dairy consumption.

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