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ti xi xi
ei = γ + δI + εi
1+
t m m
i i i
xi
where, ti is the tariff, ei is the elasticity of import demand, is the inverse penetration ratio, I
m
is the industry organization dummy, εi and μ i are error terms. This is the same equation, as
the equation (6) in the case of Poland. However, the proxies used for industry organization are
different for Israel: (i) the concentration index (proxied by the ratio of sales of the four largest
establishments to total sales of the industry), (ii) export intensity, (iii) intra-industry trade
index and (iv) investment-labour ratio. We set the I dummy to one whenever the variable in
question exceeded the average across industries. We used the Grubel-Lloyd index of intraindustry
trade as industries seeking protection, with lower intra-industry trade, will find their
task harder if they have to counter not only consumer dissatisfaction, but also producers who
purchase their goods as intermediates (Marvel and Ray, 1983).
The model was estimated by OLS, for the years 1995, 1999 and 2002-2003. Two types of
duties were considered: effectively applied tariffs and MFN tariffs. For any product,
effectively applied duty considers the preferential tariff if there is any, otherwise it takes the
MFN applied tariff 55 . In case of year 1995, tariffs applied in 1993 were used as a proxy for
tariffs applied in 1995. The data on production, investment, labour and concentration come
from the Israeli Central Bureau of Statistics. The relevant data was converted to US dollars
according to the average annual exchange rate and then deflated by overall PPI using 2000 as
a base year. The trade data is taken from COMTRADE. The elasticity of import demand for
all sectors is set to -1 56 . The final dataset includes 58 NACE rev. 1.1 3 digit sectors.
In Table 1 below we present the results of regression for effectively applied tariffs. The
results of the estimation for the MFN tariffs are similar and we present them in Table 2.
55
This definition and the tariffs data come from The World Integrated Trade Solution (WITS) database.
56
The data on import demand elasticities were unavailable for Israel. The study often used in the literature is
Shiells, Stern and Deardorff (1986). However, since not only it provides elasticities for a different economy and
period but also uses SITC 3-digit classification, we have decided to set the elasticity of import demand for all
sectors at -1.
99
i