DEMAND FOR MEAT AND FISH PRODUCTS IN KOREA

Both Equation (13) and Equation (14) were estimated for the Korean meat and fish
products. In Equation (13), the estimated value of φ is 1.2193, with a standard error of 0.0829.
The p-value of φ is 0.0001. In Equation (14), the estimated value of λ is 0.0221, with a standard
error of 0.0097. The p-value of λ is 0.0237. The p-value of φ is less than that of λ in the test,
indicating that the LA/AIDS fits better for the Korean meat and fish industry than the Rotterdam
model.

Endogeneity of the Expenditure Variable

One concern is whether the expenditure variable in the model is exogenous. If the
expenditure variable is exogenous, the seemingly unrelated regression (SUR) estimator is
efficient for estimating parameters of the model by enforcing homogeneity and symmetric
restrictions in estimation. The adding-up condition is imposed by dropping one equation in the
system. When the expenditure variable in the model is endogenous, it is correlated with the
random error term, so the SUR estimator is no longer an unbiased estimator (Edgerton). In this
case, the three-stage least squares (3SLS) estimator is consistent for estimating the demand
system. To test endogeneity of the expenditure variable, the Hausman test suggested by
LaFrance was used.

The Hausman test statistic is

(15)           m = T(θ * - θ) [Var(θ^*) - Var(θ^)]"¹(θ^ * - θ^),

which has a chi-square distribution with degrees of freedom equal to the number of unknown
parameters in θ . If m is larger than the critical value, then the null hypothesis of exogeneity is
rejected.

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