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Manufactures Import Demand: Structural Differences in the European Union

Modern trade theory suggests that trade patterns depend upon the variety and quality of goods a country produces as well as on comparative advantage. Variety and quality can be represented by technology and by the presence of foreign firms. We test for structural differences in import demand amongst European countries. We study manufactures import demand across 9 European countries, pooling over the period 1970-1995, starting with a set of adequate import demand equations. If we allow for the same technology but different FDI effects across countries, it is possible to impose common long-run income and price effects on manufactures imports.