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The asymmetric effect of income on import demand in Greece

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  • Ioanna C. Bardakas

    ()
    (Bank of Greece)

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    Abstract

    This paper presents empirical evidence supporting the argument that a significant asymmetry exists in the income elasticity of Greek imports. Using multivariate cointegration techniques for the estimation of long-run imports we derive short-run error correction equations that separate income elasticities for periods when income is rising and periods when it is falling. The empirical results show that the response of imports to rising income is stronger than the response of imports to falling income. The important policy implication of this asymmetry is that a consecutively positive growth would lead imports to continuously increase causing the current account deficit to persistently widen.

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    File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper2013159.pdf
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    Bibliographic Info

    Paper provided by Bank of Greece in its series Working Papers with number 159.

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    Length: 20
    Date of creation: May 2013
    Date of revision:
    Handle: RePEc:bog:wpaper:159

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    Web page: http://www.bankofgreece.gr
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    Related research

    Keywords: Import demand; asymmetric income elasticities; multivariate cointegration; short-run error correction; current account deficit; structural reforms.;

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    1. Engle, Robert F. & Hendry, David F., 1993. "Testing superexogeneity and invariance in regression models," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 119-139, March.
    2. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May.
    3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    4. Costas Milas, 1998. "Demand for Greek imports using multivariate cointegration techniques," Applied Economics, Taylor & Francis Journals, vol. 30(11), pages 1483-1492.
    5. Dipendra Sinha & Tapen Sinha, 2000. "An aggregate import demand function for greece," Atlantic Economic Journal, International Atlantic Economic Society, vol. 28(2), pages 196-209, June.
    6. Tsangyao Chang & Yuan-Hong Ho & Chiung-Ju Huang, 2005. "A Reexamination Of South Korea¡¯S Aggregate Import Demand Function: The Bounds Test Analysis," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 119-128, June.
    7. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
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