Import demand under price and exchange-rate uncertainties: The case of U.S. Atlantic salmon imports

Abstract

This study investigates the impacts of price and exchange rate volatilities on Atlantic salmon imports in the U.S. market. We first derive an extended Rotterdam demand model, revealing how risk factors affect import demand through ‘adjusted’ prices. For example, the theoretical model shows that risk-averse importers add risk premiums as a markup for the cost of risk factors. Moreover, the trade effect of volatility variables depends on own-price elasticities and the degree of substitutability between competing products. Our empirical results reveal that U.S. salmon importers are sensitive to price and exchange rate volatilities; however, these two risk factors have differing impacts on import demand, implying the necessity (or effect) of hedging strategies.