The Effect Of Income, Bilateral Exchange Rate And Price Shocks On Demand For Fresh Norwegian Atlantic Salmon In China

As income levels amongst China’s urban middle and upper class are reaching new levels, a willingness to try imported food is emerging. At the same time expenditure on aquatic products is increasing, mostly because of an increasing demand for quality. This thesis analyzes the effect changes in income has on changes in demand for fresh Norwegian Atlantic salmon in China, and whether or not there is a causality relationship between them. The findings indicate that demand is highly income elastic, with a short-run elasticity of4.81and a long run elasticity of1.43. When price and exchange rate is included in the analysis, the income elasticity becomes2.55in the short run and1.47in the long run. In both cases, the speed of adjustment back to an equilibrium state after a shock to the income variable is slow. Exchange rate does not seem to have much effect on demand, and although the relationship is negative; demand is relatively inelastic to price changes. In general, there seems to be weak causality between the variables. In the Japanese and Hong Kong market, demand seems to be caused by income, exchange rates, and prices to a larger extent than in China. The reason seems to be differences in market conditions, as well as salmon’s position in each market.