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Reviewing Pakistan’s Import Demand Function: A Time-Series Analysis, 1970–2010

Author

Listed:
  • Zunia Saif Tirmazee

    (Teaching Fellow, Lahore School of Economics.)

  • Resham Naveed

    (Teaching Fellow, Lahore School of Economics.)

Abstract

This paper investigates the conventional import demand function for Pakistan using time-series data sourced from the World Development Indicators for the period 1970 to 2010. Using a vector error correction model and impulse response functions, we show that, for the given period, relative prices and income lose their significance as long-run determinants of import demand. This indicates the need for additional determinants. We compare the residuals of the conventional import demand function with those of a model that includes the terms of trade and foreign exchange availability (in addition to the conventional parameters) as determinants of import demand, and find that the latter largely resolves much of what is nondeterministic in the former model. The paper also explores the peculiar trend of a falling imports-to-GDP ratio (from the 1980s to the 2000s), which is unusual for a developing country. In a subsidiary regression analysis for this period, we argue that falling net capital inflows explain this persistent fall in the imports-to-GDP ratio. The recovery thereafter, when Pakistan started catching up with other developing economies, may have been responsible for the 2008 balance-of-payments crisis.

Suggested Citation

  • Zunia Saif Tirmazee & Resham Naveed, 2014. "Reviewing Pakistan’s Import Demand Function: A Time-Series Analysis, 1970–2010," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(Special E), pages 371-393, September.
    • Handle: RePEc:lje:journl:v:19:y:2014:i:sp:p:371-393
    as

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    File URL: http://lahoreschoolofeconomics.edu.pk/EconomicsJournal/Journals/Volume%2019/Issue%20SP/16%20Zunia%20Resham%20Final.pdf
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    References listed on IDEAS

    as
    1. Rashid, Abdul & Razzaq, Tayyaba, 2010. "Estimating Import-Demand Function in ARDL Framework: The Case of Pakistan," MPRA Paper 23702, University Library of Munich, Germany.
    2. Rashid, Abdul & Razzaq, Tayyaba, 2010. "Estimating Import-Demand Function in ARDL Framework: The Case of Pakistan," MPRA Paper 26079, University Library of Munich, Germany.
    3. Augustine Arize & John Malindretos & Elias Grivoyannis, 2004. "Foreign exchange reserves and import demand in a developing economy: the case of Pakistan," International Economic Journal, Taylor & Francis Journals, vol. 18(2), pages 259-274.
    4. Khwaja Sarmad & Riaz Mahmood, 1985. "Price and Income Elasticities of Consumer Goods Imports of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 24(3-4), pages 453-462.
    5. Abdul Rashid & Tayyaba Razzaq, 2010. "Estimating Import-Demand Function in ARDL Framework," EERI Research Paper Series EERI_RP_2010_15, Economics and Econometrics Research Institute (EERI), Brussels.
    6. Nusrate Aziz & Nicholas Horsewood, 2008. "Determinants of Aggregate Import Demand of Bangladesh: Cointegration and Error Correction Modelling," International Trade and Finance Association Conference Papers 1114, International Trade and Finance Association.
    7. Mohsen Bahmani-Oskooee, 1998. "Cointegration Approach to Estimate the Long-Run Trade Elasticities in LDCs," International Economic Journal, Taylor & Francis Journals, vol. 12(3), pages 89-96.
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    Cited by:

    1. Nabi, Amina Ghulam & Khan, Usman Ullah, 2015. "Exchange Rate Volatility and Import Demand Function: A Comparative Analysis of Selected SAARC Countries," MPRA Paper 105066, University Library of Munich, Germany.

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    More about this item

    Keywords

    Pakistan; import demand function estimation; capital inflows; balance of payments.;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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