U.S. merchandise imports and the dispersion of demand

Abstract

The hypothesis is advanced that if imports are increasingly sensitive to demand pressure in particular markets an economy's level of imports will depend not only on the aggregate pressure of demand but also on the distribution of demand across markets. A model is developed to capture these dispersion effects and the sufficient conditions are derived for the dispersion effect to be positive. The model is then fitted to US data taking industries and geographic States as markets from which to construct indexes of demand dispersion. The model fits the data well, with the dispersion hypothesis supported taking the distribution of demand across States.

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