Import Demand for Quality in the Japanese Beef Market

The case of reduction in ad valorem tariffs as a trade liberalization policy is considered in this article. It is shown that the reduction leads to a higher quality of imports, ceteris paribus. This hypothesis was tested on the case of Japanese beef imports from the United States and Australia. U.S. beef, according to the results of Gallup surveys, is considered by Japanese consumers to be a high quality product, while Australian beef is considered to be a low quality product. Empirical results support the hypothesis. Moreover, the recent domination of U.S. beef in the Japanese market is further explained by increasingly more efficient U.S. beef production relative to Australian production and a strong income effect, where an increase in per capita income leads to more demand for higher quality products.