Non-stationarity and the import demand for virgin olive oil in the European Union

Abstract

The aim of this study is to analyse the importation of virgin olive oil to European Union countries, paying special attention to the Spanish export contribution. The method used is based on the estimation of an imports demand system. The novelty of the paper lies not in the modelling approach but in the explicit consideration of the univariate characteristics of series that is included in the analysis. Since prices are non-stationary, cointegration among them has been tested. Results indicate that they are cointegrated and that homogeneity holds. As a result, relative prices are included in the imports demand system. Structural change is also considered so as to account for the entrance of both Spain and Greece into the EU during the period studied. Results demonstrate the leadership of Spain within the EU virgin olive oil market as well as the increasing competitiveness of Greek oil.

Notes

On the other hand, from a statistical point of view, market shares are bounded between 0 and 1, so it is expected to be stationary in the long run. However, in some cases they show the typical characteristics of I(1) processes. Thus, Ng (1995), Attfield (1997) and Pesaran and Shin (1999) have been followed in the present work and it has been tested to see if market shares are or are not stationary.

Several tests considering that the structural change had affected the trend or both the intercept and the trend have been also estimated. Results from such tests indicated that the structural change only had affected the intercept, which are those presented in Table 1. Results from alternative models are available from the authors upon request.

Multivariate tests for autocorrelation and normality (Doornik and Hansen, 1994) have been carried out to check the statistical adequacy of the model before applying the reduced rank tests. Results indicate that the system is properly specified with p-values 0.18 and 0.23, respectively.

A full description of the testing procedure is given in Johansen and Juselius (1994) and Johansen (1995).

The estimated parameters are not included but they are available from the authors upon request.