An Empirical Study on the Structural Change of Fruit Demand in Korea

This study has employed the Gradual Switching IAIDS model based on the assumption of the breaking structural change in the fruit demand system due to increasing import of fruits. Two types of analysis have been adopted because of the variety of fruits and strong seasonality. The first type of demand analysis is to find relationship among domestic fruits, domestic fruits and vegetables, and imported fruits. The second one has included in domestic apples, domestic citrus, domestic watermelons, domestic melons, bananas, oranges, imported grapes, and other fruits. As a result of the first type analysis, the structural change has occurred in increasing the share of expenditure on imported fruits during the period from February 1999 to September 2014. As a result of the cross price flexibility analysis, the imported fruits has showed substitution relationship with the domestic fruits and domestic fruits and vegetables. In addition to the substitution relationship has been strong after the structural change. The absolute value of the scale flexibility for the imported fruits has decreased after the structural change. On the other hand, that of domestic fruits has increased after the structural change. In the second type analysis, the share of expenditure of all domestic fruits(apples, watermelons, melons) except citrus has decreased, and that of imported fruits(bananas and imported grapes) has increased. Also, after the structural change, the substitution relationship between the domestic and imported fruits has been strong. For instance, orange has showed substitution relationship not only with citrus but also with apples, watermelons and melons after the structural change. Also, imported grapes has increased in substitution relationship with citrus, watermelon and melon. In this way, there is a indirect substitution relationship among different kinds of fruits as well as a direct substitution relationship between similar fruits, such as citrus and orange. In the case of scale flexibility of domestic fruits(apples, citrus, watermelons, melons), those of the absolute value have showed increasing trend after the structural change. It means that the price instability has become worse than before structural change. However, the scale flexibility of the most imported fruits have showed a smaller absolute value after the structural change. This means that the price decline of the imported fruits has decreased as the overall market volume increases after the structural change.