A Study on the Demand Elasticity of Liquors Imported from China and the Effect of Korea-China FTA on Korean Alcohol Industry

Abstract

The purpose of this study is to estimate the demand elasticities of beer and Chinese kaoliang spirits in order to analyze the results of the Korea-China FTA on the domestic alcohol market. The import-export data of the Korea Customs Office were used for the analysis and FGLS was used as a method for the estimation. Based on the results of the estimation, the income elasticity of imported Chinese beer was estimated as 3.09, the price elasticity of imported Chinese kaoliang spirits as -0.59, and income elasticity as 0.90. Also, the price elasticity of all imported beer was estimated as -1.83 and income elasticity as 3.82. Since the demand for beer reacted sensitively to prices and income, it is expected that if prices for alcohol would be reduced by the FTA, demand for alcohol will increase greatly.